Racing to the Middle: Minimum Wage Setting and Standards of Fairness

56 Pages Posted: 3 May 2006

See all articles by David A. Green

David A. Green

University of British Columbia (UBC) - Department of Economics

Kathryn Harrison

University of British Columbia - Department of Political Science

Date Written: April 2006

Abstract

We examine the setting of minimum wages, arguing that they can best be understood as a reflection of voters' notions of fairness. We pursue this idea by setting out a theoretical model of minimum wage setting in a federation. The key model implications are that minimum wages should track movements in the unskilled wage distribution and movements in minimum wages set in other provinces. The model also has the implication that governments will tend to "race to the middle" of the provincial minimum wage distribution in an attempt not to appear to be unfair. We examine these implications using two types of evidence: interviews with policy makers; and econometric evidence based on minimum wage data from the ten Canadian provinces from 1969 to 2005. Both forms of evidence are strongly supportive of the model. The estimation also indicates a lack of support for models based on the political power of competing, self-interested groups or on the idea that minimum wages are set to meet redistributional goals.

Keywords: minimum wages, interjurisdictional interactions, fairness

JEL Classification: H73, J38, Z13

Suggested Citation

Green, David Alan and Harrison, Kathryn, Racing to the Middle: Minimum Wage Setting and Standards of Fairness (April 2006). Available at SSRN: https://ssrn.com/abstract=898695 or http://dx.doi.org/10.2139/ssrn.898695

David Alan Green (Contact Author)

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada
604-822-8216 (Phone)
604-822-5915 (Fax)

Kathryn Harrison

University of British Columbia - Department of Political Science ( email )

Vancouver, V6T 1Z1

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