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Minimum wage disemployment multiplier effect?

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Wheylous posted on Fri, Jul 13 2012 11:07 AM

Simple economics teaches us that minimum wage laws cause shifts in employment from unskilled to skilled labor. We know that those workers whose MRP is below the minimum wage will remain unemployed.

However, consider that the minimum wage is raised significantly (to, say $15). The workers with an MRP below $15 will be unemployed. However, those workers do not exist in isolation. Their outputs are inputs to more skilled workers within the same company (and others). If these workers are suddenly unemployed because they have been priced out, then the workers higher up do not have inputs. Hence, they lose their own MRP and they might fall below their salary and be fired as well.

Could, then, minimum wage have a multiplier disemployment effect? Not only do low-skilled workers lose jobs, but also more-skilled workers who depend on inputs from the cheaper labor. Is this sensical? Could I be wrong? What I'm thinking is that the value that the product is to the higher stages of productions is incorporated into the MRP of the lower-skilled workers, and hence there is no disemployment at higher levels?

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Interesting q.

If we look at what happened to the tuna industry in American Samoa, thanks to minimum wage laws, it seems everyone lost their jobs, not just the minimum wage earners.

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