LOBBYING FOR MINIMUM WAGES |
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| Authors: | Josip Lesica |
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| Affiliation: | Department of Economics, McMaster University, Hamilton, ON, L8S 4M4, CanadaI am grateful to Seungjin Han, Stephen Jones, and Shintaro Yamaguchi for their support, Abigail Wozniak, Michael Veall, Arthur Sweetman, Jeffrey Racine, Lonnie Magee, David Green, and two anonymous referees for valuable comments. I also thank Christian Bj?rnskov, Niklas Potrafke, and Sean Cahill for generously sharing their data, Steven Sprick Schuster for helpful suggestions, and participants at the 2016 conference of the Canadian Economics Association, the 27th International Conference on Game Theory, 72nd IIPF Congress, and the 2015 Association for Public Economic Theory conference for helpful input. Useful discussions with Md. Mahbubur Rahman are acknowledged. All errors are my own. |
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| Abstract: | Using a common agency lobbying framework, this paper illustrates how the minimum wage set reflects the interaction between economic and political factors and under what circumstances will the policymaker be induced, through lobbying, to change the minimum wage. Specifically, when the labor demand elasticity is large, lobbying is successful in inducing the policymaker to set the minimum wage in accordance with her political ideology. However, the paper also shows the conditions under which lobbying will reverse the ideological preference and induce a business‐friendly government to increase the minimum wage. Empirical analysis on a panel data for ten Canadian provinces gives considerable support for theoretical predictions. The real minimum wage decreases in skill‐adjusted union density and political ideology, while larger labor demand elasticity reinforces the influence of political ideology in the presence of lobbying. (JEL J38, D72, D78) |
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