Labour Market Matters - November 2012

While proponents argue that minimum wage laws are essential in improving social welfare and economic well-being, implementation of minimum wage laws can also be associated with increased unemployment and the movement of workers into the informal sector where worker protection and workplace standards are less likely to be observed compared to the formal sector. A paper entitled “Estimating the Effects of Minimum Wage in a Developing Country: a Density Discontinuity Design Approach†(CLSRN Working Paper no.142) by CLSRN affiliate Hugo Jales (University of British Columbia), proposes a novel framework to empirically assess the effect of the minimum wage on unemployment, average wages, sector mobility, wage inequality, the size of the informal sector, and on labour tax revenues. The study finds that while minimum wage policy can increase average wages and reduce wage inequality, the policy has the unintended effect of causing labor tax revenues to fall as a result of workers shifting from the formal to informal sectors. Proponents of unionization assert that unions have beneficial social welfare impacts, such as providing workers with improved wage rates, fringe benefits and working conditions, but other evidence points to the negative effects of unions on corporate profits, investment, and employment growth. More recently, research has examined the potential for spillover effects of unions on the wage outcomes of non-unionized workers. Indeed, examination of spillover effects of union wage outcomes in the United States has been found to account for up to one-third of the growth in American wage inequality in recent decades. In a paper entitled “The Effect of Labour Relations Laws on Union Density Rates: Evidence from Canadian Provinces†(CLSRN Working Paper no. 141), CLSRN affiliates Scott Legree (University of Waterloo), Tammy Schirle (Wilfrid Laurier University) and Mikal Skuterud (University of Waterloo) examine the impact of changes in labour relation laws on union density rates in Canada. They find that while changes to labour relations laws have the potential to greatly increase union density rates, increased unionization through labour relations reform tends to benefit workers who would enjoy relatively high wages even in the absence of unions. Consequently, the authors argue that reforms in labour relations laws are unlikely to result in significant reductions in wage inequality

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