While the widening wage gap is increasingly in the spotlight, the issue of a minimum wage policy as a mechanism for redressing economic inequality is also attracting growing interest. However, it will be necessary to consider whether or not low-paid workers will face reduced opportunities if a specific minimum wage level is set.
Whereas basic research on the effects on employment of an increase in the minimum wage is still at a nascent stage in Japan, in the United States wide-ranging minimum wage policies have been implemented not only at the federal level but also at the state and local governmental levels, and these have enabled an accumulation of research. RIETI invited Professor David Neumark of the University of California, Irvine to a recent seminar organized in the form of a roundtable discussion. The seminar was chaired by RIETI Senior Fellow Kotaro Tsuru. Also participating were RIETI Faculty Fellow Daiji Kawaguchi, Associate Professor in the Faculty of Economics at Hitotsubashi University, other researchers in labor economics, and policy-makers. Professor Neumark is a leading scholar in minimum wage studies in the U.S. and has authored a review of more than 100 study articles.
The seminar started with Professor Neumark's presentation of a summary of U.S. research trends spanning the last two decades. He reported that a close review of the results of the large number of studies in the U.S. reveals that the competitive labor market model, according to which a rise in the minimum wage results in a decrease in employment, is borne out in reality and that debates on minimum wage policies are shifting toward the question of whether or not minimum wage increases produce benefits that offset the negative effect on employment. He added that the U.S. minimum wage policy particularly hurts low-wage workers in low-income households, and that the Earned Income Tax Credit (EITC), a scheme of refunding income tax to low-income individuals and families, is a more effective policy for reducing poverty.
Questions and comments were then put forward by Japanese labor economics specialists and policy-makers who presented data on Japan's wage distribution and minimum wage distribution by prefecture and gender. In particular, Professor Kawaguchi suggested that there is a high possibility that the minimum wage may have a strong impact on wage levels for female workers. Professor Neumark's presentation drew many remarks. Some commented that it is necessary to conduct research that takes into account the large differences between countries in labor markets and systems, worker diversity, their interregional mobility, and the impact of the minimum wage on labor force participation. Others cited the issue of imbalance between the level of minimum wage and social benefits in Japan and yet others stressed the importance of facilitating the shift toward high productivity jobs. A more in-depth summary of the debate will be published shortly on the RIETI website.
"Minimum Wages, Employment, and the Income Distribution" [PDF: 112KB]
David NEUMARK (Professor of Economics, University of California, Irvine)