Nobel Prize in Economics: raising the minimum wage does not impact employment

By Christian Alcalá and Cristina Alvarado

The Royal Swedish Academy of Sciences decided to award the Nobel Prize in Economics to David Card, Joshua D. Angrist and Guido W. Imbens.

The award for Card was “for his empirical contributions to labor economics”, while Angrist and Imbens received the award “for their methodological contributions to the analysis of causal relationships.” Economists through natural experiments They managed to answer important questions for society.

Angrist and Imbens established a method to evaluate the conclusions of the “natural experiments” to mid 90’s, with this they were able to demonstrate how accurate these observations can be.

Meanwhile, Card was able to show that an increase in the minimum wage may not necessarily have negative effects on job creation, a concept that is constantly used when this issue is on the agenda of a country.

Sustained increase

The former Minister of Labor Christian Sánchez shares the idea of ​​the Nobel, since it is a fallacy to affirm that any increase in the Minimum Living Remuneration (RMV) will cause a negative impact in the economy, even more so when these increases are supported by the productivity.

For his part, the sociologist Enrique Fernández-Maldonado said that the Nobel is correct in saying that the policies in favor of the minimum wage do not generate a loss of employment. Rather, on the contrary, they can contribute to boosting the internal market and, based on this, the labor market, provided that the consumption structure has a preponderance in the market. local market.

The also member of the Center for Public Policies and Human Rights (Peru Equidad) affirmed that approximately 40% of the Economically Active Population (EAP) receives minimum wage. “And he uses his salary for the consumption of food, housing, health and other secondary goods.” So that Raising the minimum wage would help boost the internal market and work, provided that products made internally are consumed.

For Fernando Cuadros, former Deputy Minister of Employment Promotion and Labor Training, Card’s conclusion is plotted with the Peruvian labor market, where between 2003 and 2015 there were several increases in the minimum wage and did not generate an increase in informality or unemployment, or it had negative effects on the economy. “On the contrary, in that period the economy continued to grow, formal employment continued to be generated at significant rates and there was even a reduction in the informality rate and unemployment, because these increases occurred in contexts of economic growth, which allowed absorbing wage improvements without affecting employment “, Cuadros pointed out.

Institutionalized Minimum Wage Review Policy

President Pedro Castillo announced in his first message to Congress (July 28) that he will promote an increase in the minimum wage, however, Minister Pedro Francke clarified that now was not the time. However, he did consider it appropriate to establish a method of readjustment of the minimum salary.

Former minister Christian Sánchez said that this is a pending task, since It has been debated for years in the National Labor Council and that in 2018 a great advance had already been made, but to date its approval had not been achieved.

Fernando Cuadros considered it important to have an institutionalized RMV review policy.

Words

Christian Sánchez, former Minister of Labor

“In compliance with the constitutional mandate, there would have to be a formula that establishes the periodicity and the objective criteria for the increase in remuneration ”.

Fernando Cuadros, former Deputy Minister of Employment

“From 2003 to 2015, approximately, there were several increases in minimum wages and they did not generate an increase in labor informality or unemployment ”.