New studies suggest minimum wage could have negative long-term effects

“That makes higher minimum wages look like electorally popular policies; they do not require unpleasant tax rises, and do not seem to lock the poorest out of work. As a result, proposals for large increases in the minimum wage abound. Some propose tying the minimum wage to inflation or earnings, which would make the increases permanent. But three new papers suggest a more cautious approach would be more sensible.

Their results suggest that a 10% increase in the minimum wage, made permanent by linking it to inflation, could cut job growth by 0.3 percentage points a year. Over a long period, this could amount to a very large difference indeed, though the authors stress that such long-run extrapolations are difficult given the limited experience of such permanent changes. Worryingly, the effects on jobs growth they see are concentrated among people under 25, and those without a degree. These are vulnerable groups who risk being locked out of the labour force for good.”

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