Routinization and the Decline of the U.S. Minimum Wage

Finn Martensen

No 2014-16, Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz

Abstract: The U.S. minimum wage declined in real terms since the late 1970s. In the same time, the wage of the least skilled workers fell in real terms, while the wage of the highest skilled workers increased. To shed light on these issues, I use a simple model of routinization. High-ability workers, after having received additional education, can substitute low-ability co-workers by machines. Technical progress results in more high-ability workers receiving additional education and in a declining wage for low-ability workers. A government opposes both unemployment and wage inequality. I calibrate the model and show that technical progress induces the government to lower the minimum wage. Hence, the model contributes to understand the decline in the U.S. minimum wage.

Keywords: Minimum wage; Routinization; Education; Wage inequality; Unemployment (search for similar items in EconPapers)
JEL-codes: E24 I24 J31 J88 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2014-11-19
New Economics Papers: this item is included in nep-lab, nep-lma, nep-ltv and nep-mac
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