Promoting Labour Market Efficiency and Fairness through a Legal Minimum Wage: The Webbs and the Social Cost of Labour |
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Authors: | Bruce E. Kaufman |
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Affiliation: | Department of Economics, Andrew Young School of Policy Studies, Georgia State University |
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Abstract: | Neoclassical economists, using a competitive demand/supply model of labour markets, typically conclude a legislated minimum wage is harmful to economic efficiency and social welfare. The major theoretical counter-attack by proponents of a minimum wage is to argue that low-wage labour markets are better modelled as monopsonistic. This article develops and formalizes a second theoretical defence for a legal minimum wage law. This defence rests on the concept of the social cost of labour , as originally popularized by Sidney and Beatrice Webb and then further developed by American institutional economists. This analysis is unique in that it continues to use the competitive demand/supply model but nonetheless demonstrates that a legislated minimum wage often simultaneously increases both economic efficiency and fairness, unlike the neoclassical prediction. |
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