The Minimum Wage: A Motor For Growth Or A Brake On The Economy?

Setting minimum wages are a direct way for governments to influence wage levels. Even though they are one of the most analysed and debated topics in economics, their impact on (un-)employment, growth and poverty remains ambiguous. For some experts, the rise of minimum wages will lead to job losses, as it increases the cost of labour. Others argue that minimum wages not only prevent the creation of a ‘working poor’ class, but create jobs by increasing employee purchasing power. The empirical evidence from OECD countries does not provide a clear answer.

Over recent years, the focus of the debate has switched from the macro-economic effects to the social dimension of minimum wages. A statutory minimum wage is increasingly considered a useful tool to ensure fair wages and social inclusion.

The international financial crisis widened the gap on minimum wage levels between many Member States. At the same time, it gave new momentum to the debate on ‘just’ minimum wages, low wage immigration and a harmonised minimum wage rate for all Member States. The idea of combining minimum wages with fiscal policy measures such as tax relief, earned income tax credits or additional income support provisions to increase low paid employees’ incomes is a subject for further discussion.

The European Parliament (EP) has adopted several resolutions against ‘in work poverty’ and social exclusion over recent years. The minimum wage is increasingly considered to be a tool which ensures fair wages and social inclusion.

Written by Cemal Karakas.