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Minimum wages in an automating economy

Eckardt, Marcel Steffen (2021):
Minimum wages in an automating economy.
In: Journal of Public Economic Theory, DOI: 10.1111/jpet.12528,
[Article]

Abstract

We explore the suitability of the minimum wage as a policy instrument for reducing emerging income inequality created by new technologies. For this, we implement a binding minimum wage in a task-based framework, in which tasks are conducted by machines, low-skill, and high-skill workers. In this framework, an increasing minimum wage reduces the inequality between the low-skill wage and the other factor prices, whereas the share of income of low-skill workers in the national income is nonincreasing. Then, we analyze the impact of an automating economy along the extensive and intensive margins. In a setting with a minimum wage, it can be shown that automation at the extensive margin and the creation of new, labor-intensive tasks do not increase the aggregate output in general, as the displacement of low-skill workers counteracts the positive effects of cost-savings. Finally, we highlight a potential trade-off between less inequality of the factor prices and greater inequality of the income distribution when a minimum wage is introduced into an automating economy.

Item Type: Article
Erschienen: 2021
Creators: Eckardt, Marcel Steffen
Title: Minimum wages in an automating economy
Language: English
Abstract:

We explore the suitability of the minimum wage as a policy instrument for reducing emerging income inequality created by new technologies. For this, we implement a binding minimum wage in a task-based framework, in which tasks are conducted by machines, low-skill, and high-skill workers. In this framework, an increasing minimum wage reduces the inequality between the low-skill wage and the other factor prices, whereas the share of income of low-skill workers in the national income is nonincreasing. Then, we analyze the impact of an automating economy along the extensive and intensive margins. In a setting with a minimum wage, it can be shown that automation at the extensive margin and the creation of new, labor-intensive tasks do not increase the aggregate output in general, as the displacement of low-skill workers counteracts the positive effects of cost-savings. Finally, we highlight a potential trade-off between less inequality of the factor prices and greater inequality of the income distribution when a minimum wage is introduced into an automating economy.

Journal or Publication Title: Journal of Public Economic Theory
Uncontrolled Keywords: automation, displacement effects, employment, inequality, labor demand, minimum wage, tasks, wages
Divisions: 01 Department of Law and Economics
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete > Fachgebiet Finanzwissenschaft und Wirtschaftspolitik
Date Deposited: 05 Jul 2021 09:37
DOI: 10.1111/jpet.12528
Official URL: https://onlinelibrary.wiley.com/doi/abs/10.1111/jpet.12528
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