Think of Andrei Sakharov, who developed the Russian hydrogen bomb, and later became a chief Soviet dissident; or Fang Lizhi, an astrophysicist who inspired the students leading the Tiananmen Square protests in When the official version of reality was tired and stilted, both stood out as seekers of the truth. That gave them immense moral authority. That would be wise for weapons science and commercial research, where elaborate mechanisms to preserve secrecy already exist and could be strengthened. Collaboration is the best way of ensuring that Chinese science is responsible and transparent.
It might even foster the next Fang. Hard as it is to imagine, Mr Xi could end up facing a much tougher choice: to be content with lagging behind, or to give his scientists the freedom they need and risk the consequences. In that sense, he is running the biggest experiment of all. Join them. Subscribe to The Economist today. Media Audio edition Economist Films Podcasts. New to The Economist? Sign up now Activate your digital subscription Manage your subscription Renew your subscription.
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Insights, stories, articles, readings, policy and literature on early childhood learning, education and play. Write the first response. Discover Medium. Make Medium yours. For the most part, we are talking about existing firms not growing as fast as they might. At the same time we should appreciate not only that workers are less likely to quit, but that layoff rates actually fall as firms become more invested in their more loyal and productive employees. So in some sense a high minimum wage economy is different from a low minimum wage economy, even if on net the overall level of employment is roughly the same.
There is longer job tenure and lower hiring, jobs are more stable, the jobs market is less dynamic. When we are in this dynamic frame of mind we can more clearly appreciate what all the fuss is about. The change in the Ontario minimum wage may have been so large, and introduced too quickly, for this evolutionary adjustment process to work its magic.
Basically, you can think of higher minimum wages as giving workers greater bargaining power; think of them as a proxy for unionization, at least in the short-term. Eventually, and particularly if there is higher productivity from a more stable group of employees, or if there is robust growth around the corner, the fuss will die down. When things settle down, higher minimum wages may contribute to changing the nature of the labour market: there are more stable jobs for less educated workers that are harder to get.
This is the way Brochu and Green summarize their research :. Thus, the policy debate should not just be about the employment rate effects of minimum wage increases but about the trade-off between good jobs with higher wages and more job stability versus easier access to jobs. And the debate is relevant for all of the low educated labour market, not just teenagers. The third rule of the road has been implicit in our entire discussion.
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When they do hire workers, business will be more discerning, and be more inclined to give jobs to the most productive among potential candidates, who as a result are less likely to be laid off in the future. To make them more productive, and reduce the labour costs associated with producing their stuff, businesses will invest in them, and in new equipment. The restaurants of the future?
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Well, they are going to polarize into, on the one hand, a high-end of quality, unique consumer experience, and refined service requiring a dedicated and savvy labour force, and, on the other hand, a low-end of standardized products and automated delivery with little human interaction. In the long run, businesses have more scope to adopt these changes and economize on low-paid, low-skilled workers.
My own view is that this process has been going on for some time, and is driven as much, even more, by the very sharp falls in the cost of capital equipment than in the rising cost of labour. It is relative prices that matter, and the comparative cost of capital—thanks in part to computerization—has fallen tremendously, minimum wage increases or not. My point is that increases in minimum wage rates are as much a result as they are a cause of labour-saving investments. Policy is endogenous. An absolutely essential rule of the road for economists navigating public policy discussion is to recognize that things interact and influence each other.
The changing nature of work is as much an influence on the policy process, as the policy process is on the nature of work. So what is all this really about? It is easy to portray this, as I admit I partially have in the introduction, as an opportunistic politician looking for a wedge issue in advance of an election. But there is more to it than that. The politician is responding to the growing inequality in the job market that makes it harder for low educated workers to climb the ladder to the middle class, to the growing insecurity of many others, and to the more challenging job prospects of the young.
That is why they might be perceived to have political traction.
The question this leaves you with, and which has been missed in much of the public discussion, is whether higher minimum wages, by themselves or in combination with other policies, are the best way to develop a more inclusive labour market with less inequality in the bottom half of the income distribution. If all of this is about income distribution, then we should debate that directly. That debate will surely flare up in the coming months, and you will need your rules of the road as the provincial government learns lessons from its basic income pilot and moves to reform income assistance, as the federal government proposes changes to the Working Income Tax Benefit in its next budget, and as the country begins to debate how to implement a Poverty Reduction Strategy.
Professor Corak, Excellent overview of a timely topic. The issue for me is adjustment. In particular How long will it take businesses to adjust to a higher wage bill? And how will they adjust?
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Businesses will always substitute cheaper capital for more expensive labor. Hence they will gradually reduce the number of workers on the payroll if workers can be replaced by machines.
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For example , Self checkouts at supermarkets may become the norm. But can businesses eventually pass on labor costs to customers so they may eventually preserve their share of the pie aka rate of return on capital employed. Many businesses have done so in the past. Accordingly , I Expect that the Tim Mug of coffee will cost a bit more eventually.
And will workers still benefit?