The data supports the sentiments such as "SMEs are important to our economy as they create most of the employment" kind of thing. I agree. Now look at the average wages they paid to the workers. Here is the question: if we keep increasing the minimum wages, and enforce it, who are to win and who are to lose?
Showing posts with label minimum wages. Show all posts
Showing posts with label minimum wages. Show all posts
Friday, November 14, 2008
Minimum wages and SME
From Sensus Ekonomi 2006 (quoted from a seminar presentation):
The data supports the sentiments such as "SMEs are important to our economy as they create most of the employment" kind of thing. I agree. Now look at the average wages they paid to the workers. Here is the question: if we keep increasing the minimum wages, and enforce it, who are to win and who are to lose?
The data supports the sentiments such as "SMEs are important to our economy as they create most of the employment" kind of thing. I agree. Now look at the average wages they paid to the workers. Here is the question: if we keep increasing the minimum wages, and enforce it, who are to win and who are to lose?
Wages, unemployment and formal employment
Take a look at these charts:
Here's how I read them. First, (A) and (B) show a strong association between real minimum wages and overall (average) employee wages. The relation was most obvious between 1999-2003. This shows that minimum wage has become an arena of collective bargaining. Wage negotiation happens not in the private sphere (within company) but in the public sphere (policy). This indicates an institutional failure in the labor market: bipartite negotiation. Since 2003, real minimum wage has been relatively stagnant, so has the overall wages.
Second, (B) and (C) can be divided into three periods. Prior to the crisis (1998), all went well in the sense that wage was growing, and so was formal sector employment. From 1999-2003, when wages was increasing rapidly, share formal sector employment declined significantly. After 2003, wages has been relatively stagnant. It is no coincidence that formal sector employment started to expand.
Note: 1) you won't see the relations as significant if you just simply take one point of time and compare it to another (say, 1999 vs. 2008). 2) a colleague of mine did an econometric estimation and confirmed that every 10% increase in average regional minimum wages is associated with 1 percentage point decline in the share of formal sector employment a year later.
Third, I didn't put it on the picture -- but apparently there is an obvious relations between wages and unemployment. Our friend Suahasil Nazara and his co-author Iyanatul Islam might be right (like Card and Krueger). But I second Prof. Aris Ananta that unemployment rate may not be the best labor market indicator, as it doesn't tell much about job quality and welfare. In such case, formal sector employment should be a better indicator.
Now the question is who wins and who loses if the minimum wage is increased?
Here's how I read them. First, (A) and (B) show a strong association between real minimum wages and overall (average) employee wages. The relation was most obvious between 1999-2003. This shows that minimum wage has become an arena of collective bargaining. Wage negotiation happens not in the private sphere (within company) but in the public sphere (policy). This indicates an institutional failure in the labor market: bipartite negotiation. Since 2003, real minimum wage has been relatively stagnant, so has the overall wages.Second, (B) and (C) can be divided into three periods. Prior to the crisis (1998), all went well in the sense that wage was growing, and so was formal sector employment. From 1999-2003, when wages was increasing rapidly, share formal sector employment declined significantly. After 2003, wages has been relatively stagnant. It is no coincidence that formal sector employment started to expand.
Note: 1) you won't see the relations as significant if you just simply take one point of time and compare it to another (say, 1999 vs. 2008). 2) a colleague of mine did an econometric estimation and confirmed that every 10% increase in average regional minimum wages is associated with 1 percentage point decline in the share of formal sector employment a year later.
Third, I didn't put it on the picture -- but apparently there is an obvious relations between wages and unemployment. Our friend Suahasil Nazara and his co-author Iyanatul Islam might be right (like Card and Krueger). But I second Prof. Aris Ananta that unemployment rate may not be the best labor market indicator, as it doesn't tell much about job quality and welfare. In such case, formal sector employment should be a better indicator.
Now the question is who wins and who loses if the minimum wage is increased?
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