Lobbying for Minimum Wages

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)

The effects of automation and lobbying in wage inequality: a directed technical change model with routine and non-routine tasks

“…The second consists in task-based modeling approaches that are more concentrated in wage polarization and explain it as a result of, for instance, automation decreasing the relative demand for middle-skilled workers, the ones typically executing tasks that are more susceptible to being automated (e.g., Acemoglu and Autor 2011;Autor and Restrepo 2018). The third is related to the theoretical connection between lobbying and wage inequality found in the literature (e.g., Lesica 2018;Prettner and Rostam-Afschar 2020). With this, we also recognize the importance of non-market factors such as lobbying in shaping inequality and do not neglect the overwhelming evidence of lobbying activities in countries with high wage inequality (e.g., the USA) and the strategic behavior of firms when taking decisions concerning productive and non-productive activities.…”

“…Prettner and Rostam-Afschar (2020) argue that a more stringent tax policy that relocates resources from unproductive lobbying with the objective of rent-seeking to productive activity contributes to higher economic growth and lower inequality. Lesica (2018) shows that lobbying can influence policymakers to set the minimum wage according to the ideology of the former provided that labor demand is sufficiently elastic. Moreover, lobbying has been pointed out to negatively affect technology adoption (Comin and Hobjin 2009) and innovation (Akcigit et.…”

On the Interaction between Minimum Wage Adoption and Fiscal Redistribution: A Theoretical and Empirical Investigation

“…Our paper is related to the literature on the political economy of the MW and labour market institutions (see, e.g. Cox and Oaxaca, 1982;Sobel, 1999;Saint-Paul, 1996 and2000;Rodrik, 1999;Adam and Moutos, 2011;Lesica, 2018). In contrast to these papers, the focus of the present paper is on whether there is a majority among workers in favour of the MW institution when another redistributive device is available.…”