Monday, September 27, 2010

Employment Policy Follies

It's almost like South Africa is begging economists (or anyone with common sense) to lampoon it when it does stuff like this.


  1. Could we develop a minimum wage law that is sensitive, when it needs to be, to drastic changes in the economy? Any idea if people have written on this?

  2. I have not read about that. One could try to tie it some fraction of the average wage or something. But that's not how I would make minimum wage policy.

    One justification I've heard for the minimum wage is that in some industries or regions there might be a monopsonic firm (i.e. it buys a large fraction of all the labor in that industry or region.) So, it's like a monopoly, but it has a monopoly on buying labor, rather than selling something. An example might be a coal mining town where almost everyone works for the mining company.

    But even in such cases, I think the case for a minimum wage is dubious. E.g. The coal miners could leave the town. And how does the government know they are being paid below the market rate? It might not be easy to tell.

  3. That's helpful, thanks. Whatever you think of the economic wisdom of minimum wage laws in general, you might think that given that we have a minimum wage, we want it to be implemented in a way that avoids disastrous outcomes. If people are starving in the street because of your minimum wage law, that's probably a sign that there should be more flexibility in the law.