This analysis is not common knowledge. It is missing in the economic journals, it is missing for example in Borjas’s (1996) much used textbook for undergraduates. Borjas (1996:441) states: “The minimum wage, however, affects mainly less-skilled young workers, so it is difficult to attribute much of the unemployment problem to minimum wage legislation.” [41] For policy makers, the OECD (1998) reports: “The cross-country evidence suggests that the minimum wage has no significant impact on overall adult employment.” though OECD (2000) is more guarded, see chapter 44. We will show however that a minimum wage can have huge ‘multipliers’.
The difference that it means
It is useful to clarify the difference between currect macro-economic policy in Western nations and what macro-economic policy can be according to this book.
Current macro-economic policy:
· accepts unemployment as a consequence of low inflation and reduced deficits
· sees the likely cause of unemployment in technology, globalisation and labour market inflexibility
· focusses on aggregates and averages
· discusses the distribution of wages mainly in terms of income (in-) equality.
The new macro-economic policy:
· sees a way to combine low inflation and balanced budgets with full employment