A Needle In A Haystack. Do Increases In the Minimum Wage Cause Employment Losses?

By Ian Watson

For many years most economists thought that the answer to this was a straight forward 'yes'. However, research during the 1990s began to overturn this conventional wisdom and showed that increases in the minimum wage did not automatically lead to employment losses.

At present, the literature on this important topic remains divided, both in Europe and the United States of America. A recent Australian study, by Andrew Leigh, examined the impact of the statutory minimum wages in Western Australia and reached conclusions which supported the conventional view. However close scrutiny of Leigh's paper shows that it is fundamentally flawed. It suffers from both methodological and empirical weaknesses which are so severe as to make its claims unsustainable. Despite Leigh's efforts, it remains the case that we simply do not know a great deal about the employment impact of Australia's system of minimum wages.