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Would freezing minimum wages help recovery ?

Summary:
I’ve just responded to a poll of economists, run by The Conversation and The Economic Society of Australia on this question. Here’s my response No There has been extensive debate on the effects of minimum wages on labor demand. Over the last 25 years, the general conclusion has been that these effects are relatively small.However, these questions are irrelevant in the current context. The pace of economic recovery will be determined entirely by macroeconomic conditions, including fiscal and monetary policy, continued success in suppressing the pandemic, developments overseas and consumer confidence. In this context, an increase in minimum wages will have a modest positive effect in bolstering demand.In the longer term, the costs of the pandemic will have to be shared across the

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I’ve just responded to a poll of economists, run by The Conversation and The Economic Society of Australia on this question. Here’s my response

No There has been extensive debate on the effects of minimum wages on labor demand. Over the last 25 years, the general conclusion has been that these effects are relatively small.

However, these questions are irrelevant in the current context. The pace of economic recovery will be determined entirely by macroeconomic conditions, including fiscal and monetary policy, continued success in suppressing the pandemic, developments overseas and consumer confidence. In this context, an increase in minimum wages will have a modest positive effect in bolstering demand.

In the longer term, the costs of the pandemic will have to be shared across the community. The crisis has shown that the work of lower-paid people is vital and undervalued, while much (not all) highly recompensed activity turns out to be of marginal importance in a crisis. Those on higher incomes should bear all or most of the cost of recovery.

Results of the poll should be out next week, I think

John Quiggin
He is an Australian economist, a Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a former member of the Board of the Climate Change Authority of the Australian Government.

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