keep their jobs gain when the minimum wage is raised. There is some
evidence that some groups suffer a decline in employment consistent with
raising the wage in a fairly competitive market. At other times and places,
there is evidence that both wages and employment rise when the
minimum wage rises, consistent with labour markets in which employers
have monopsony power.
Some widely discussed research in the United States has produced hotly
debated results. David Card, from Berkeley, and Alan Krueger, from
Princeton University, traced the effects of minimum-wage increases in
California and New Jersey and found that substantial rises in these states’
minimum wages not only increased wages but also were associated with
small employment gains for teenagers. Card and Krueger argue that these
findings are inconsistent with a competitive labour market and thus take
the results as evidence in support of the view that firms have some
monopsony power in the labour market.
The Card and Krueger results have been criticized by many economists.
One criticism relates to the short span of time covered by their study. The
argument is that firms will not immediately reduce the level of
employment in response to an increase in the minimum wage—they will
instead choose not to replace workers who leave their jobs in the natural
turnover process that occurs in labour markets. But workers who are
receiving the minimum wage may be more reluctant to leave their job
after an increase in their wages, thereby reducing this natural turnover.
Thus, it is not surprising to see few employment losses (or slight gains)
when one examines the labour market immediately before and