Paul Krugman puts the IMF straight (and it is not what you think!)
This is from Market Watch:
The International Monetary Fund on Monday called on the U.S. to raise its minimum wage, but refrained from naming a specific level, saying that’s up to Congress. In its annual review of the U.S. economy, the IMF said increasing the minimum wage and expanding the Earned Income Tax Credit would help raise the incomes of millions of poor, working Americans. Read the IMF’s review. Christine Lagarde, the IMF’s managing director, told reporters an increase in the minimum wage — now $7.25 an hour — “would be helpful from a macroeconomic point of view.” The fund’s recommendation will be well received by congressional Democrats and the Obama administration, both of which have been pushing for an increase to $10.10. The proposed increase has been hampered by an election-year stalemate over major policy issues. House Republicans don’t plan to take up a bill to increase it and Senate Democrats don’t have enough members to get it through their chamber. Lagarde said the amount of an increase “needs to be decided by legislators.”Frankly speaking I am somewhat shocked that the IMF would come up with this kind of policy suggestion, but it reminded me about what Paul Krugman once said about increasing the minimum wage (yes, yes he probably have another view today):
So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment.This graph tells the same story. W eq is the equilibrium wage that would emerge in an unregulated labour market with no minimum wage. In such a market employment would be N eq. W min is the minimum wage, which is higher than the equilibrium wage (W eq). In such a world the demand for labour will be only N2, while the supply of labour will be N1. The difference between the N2 and N1obviously is the level of unemployment caused by the minimum wage. No more discussion of this topic should be necessary... PS I deleted a lot of horrible things I wrote about French lawyers... --- Follow me on Twitter here.