Tobias Seidel

The Impact of Globalisation with Rigid Labour Markets: What Policy for Western Societies? Tobias Seidel

The fall of the Iron Curtain and the opening of China to global markets has fundamentally changed the economic landscape for Western societies. One implication is that low-skilled labour in advanced OECD countries become exposed to low-wage competition. To avoid a too uneven income distribution, many Western societies have installed welfare systems interfering with labour market forces. One of the most popular instruments for this is minimum wages. This book studies the implications of increased integration with low-wage countries if labour markets in advanced economies are rigid. The autor argues that protecting wages of low-skilled workers against the forces of globalisation deteriorates the situation rather than improves it. Ironically, the income group that should be protected from income cuts bears the burden entirly alone due to higher unemployment. The suggested optimal policy is thus to provide a minimum income by paying public wage supplements rather than enforcing minimum wages.