OECD: Increase the Minimum Wage to Combat Member Nation Structural Unemployment

July 17, 2015Economicsby EW News Desk Team

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According to the OECD Employment Outlook for 2015, member nations, when taken as a whole, are still experiencing alarmingly high rates of unemployment. Indeed, the OECD report points out that unemployment rates in many European nations still exceeds 11 percent, leaving 42 million people in OECD's member states unemployed. While that is down from the 45 million in 2014, it remains 10 million higher than pre-Global Recession rates.

Unemployment rates in several nations have dropped to relatively low levels. For example, the US unemployment rate is below six percent, Japan's is below four percent, and Australia's is around six percent. Thus, much of the unemployment remains in struggling European nations. Moreover, this problem is bigger than just Greece.

"Time is running out to help workers move up the jobs ladder," the Employment Outlook 2015 report says. While the jobs outlook is improving, the OECD remains concerned that unemployment is still too high. Long-term unemployment (lasting longer than a year), high youth unemployment, and persistent unemployment among certain demographic groups remain top the list of the OECD's concerns. Moreover, many employed workers are significantly underemployed, accepting lower-paid jobs and suppressing wage growth. The OECD suggests its member states' governments should intervene to solve these problems.

This government intervention should come about in three ways, according to the OECD:

* Government sponsored employment activation measures that connect job seekers with suitable jobs.

* National organizations should address skills deficits in their respective workforces.

*Programs directed at raising job quality to ensure that wage rates increase as necessary for overall economic growth.

While the first two measures are fairly straightforward and typical measures for stimulating employment and economic growth, the third is a bit more controversial. It implies that governments have some capacity to increase job quality. However, the OECD Outlook 2015 suggests this should be accomplished by raising minimum wages.

According to the OECD, raising minimum wages will reduce inequality by increasing incomes of the poorest workers. Minimum wage increases are "a tool to ensure fair wages are paid, raise wages at the bottom of the wage distribution, and protect workers and their families from falling into poverty."

The OECD believes that this will not only benefit the lowest paid employees in a particular economy, helping to prevent poverty and stimulate domestic spending, but it should also lead to increases in wages for higher paid employees. This, in turn, will feed back into the domestic economy, stimulating growth, increasing wages further, and reducing unemployment.