MINIMUM WAGE EFFECTS WITH OUTPUT STABILIZATION

What are the effects of legal minimum wage rates on the U.S. economy? Does minimum wage legislation promote the economic self‐interest of high wage union labor and impede the economic self‐interest of capitalists as our earlier research [Cox and Oaxaca 1982] suggested? This paper uses a nine sector econometric/simulation model of U.S. industry from 1975–1978 to answer these questions in the context of stabilization policies which hold aggregate real output constant. While most simulated percentage effects are small, those for the unskilled workers themselves are not. A 15.7 percent increase in the average nominal wage rate of unskilled labor, as a result of minimum wage legislation, produced an 11 percent decrease in unskilled employment, 2.2 million jobs lost, while increasing the real wage of unskilled workers by 15 percent. Simulated changes in several key variables support our earlier observations that the self‐interests of labor unions, with skilled workers, conflict with those of capitalists over the issue of minimum wage legislation.