As a class we have been studying the principle agent problem and concept of employee shirking. An article written by Esme Deprez in Bloomberg outlines the US minimum wage increase in 2009. It suggests that the proposed increase came at a poor time for the US economy due to the recession.

A primary concern of raising the minimum wage is job losses by small businesses that can no longer afford to hire as many workers. Is this type of unemployment similar to structural unemployment caused when employers pay efficiency or above market clearing wages? Have businesses compensated for wage increases by finding cost-effective substitutes such as machinery or technology to replace labor?

A secondary concern of raising the minimum wage is the increased likelihood of shirking by employees at the minimum wage? If an employee knows that any job they receive will pay them the same or possibly more than what they currently earn are they really incentivized to perform optimally?


Dr. Tufte said...

Let me turn this one upside down. Managers aren't dumb. If the government mandates that you pay a worker more, wouldn't you be obligated to make sure they're more productive? In this case, isn't an increase in the minimum wage just giving license to managers to push workers harder?

Tarah said...

It could be lack of project management training for employees, that's why workers start to shrink. They may think that they don't know what to do anymore or they just feel there is no more room for improvement.

Owen said...

The real factor one needs to consider with a rise in minimum wage is inflation. If people are making more money, prices have to go up to accomadate the raise in income. The price increase then means that the raise received my minimum wage employees in null and there is no benefit to the economy.

Dave Tufte said...

Owen: 1) spelling error, 2) spelling or misuse of a word (repeated a second time), 3) wrong word, and 4) a different wrong word. Six points a piece is 76/100. Since you have to do 2 comments that's 38/50.

Your assertion that if people make more money that prices have to go up is not quite correct. If people's production goes up when their wage goes up, then the pressure you describe would go away. Some people have even gone so far as to remark that raising the minimum wage is like forcing bosses to yell at their employees more (to get their productivity to keep up).

Of course, for practical purposes, none of us really believes that productivity can be raised as readily as the wage itself, so the effect you describe is probably there.