Waging a battle in the labour market
Minimum wages attack symptoms; the problem requires labour market reforms
Even a cursory mention of minimum wages is enough to set off heated political debates across the world. Welfare economists support minimum wages for their redistribution effects. Mainstream economists argue that minimum wages drive down demand for labour by companies. And—especially relevant to India—minimum wages coupled with rigid labour laws send firms scurrying outside the regular formal job market—“to negotiate regulatory cholesterol", in the words of the latest Economic Survey, released in February. Firms thus hire contract labourers at suboptimal rates, which reduces the chances of a Pareto improvement.
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