The Effect of Minimum Wage on Employment

Abstract

Studying the minimum wage effects has been a matter of interest for many economist, since there are interesting economic effects of the minimum wage. Economist focused on finding what kind of effects the minimum wage has on employment. Although the majority of them found adverse employment effects, the debate still has not reached an agreement. Economists first approach this question through the basic theory of a perfectly competitive labor market. However, Keynesian school criticized it. For Lebanon, the minimum wage is almost 45 years old; knowing that minimum wage is the minimum wage an employer can lawfully pay hired person. Until today, not all employees are paid below the minimum wage. The minimum wage declared in Lebanon with the Labor Law of 1967. It is not indexed to inflation, increases only through new legislation that took place especially in the period from 1993 to 2013, and now it stands at 675,000 per month. Although Lebanese employers can adapt to the changes in a few years, it is expected that the law will have a major influence on the labor market. However, due to the lack of research on a Lebanese case study and the fact that the literature does not provide an unambiguous answer concerning the minimum wage effect, it is hard to predict the results. In order to make the possible conclusions concerning what might happen in Lebanon after its new minimum wage law enacted in coming years, this dissertation will study the effect of minimum wage increase on employment at macro-level using time-series data for the annual observation period lasted from 1993 till 2013.After theoretical literature revision on minimum wage and discussion over stylized facts on the labor market in Lebanon, an econometric model based on ordinary least square regression method was built up. It’s consisting of the minimum wage and most independent variable that affected the economy to analyze the effect of the minimum wage on the employment. Results reveal that the minimum wage has a positive effect on employment. However, due to the limited data, the effect of minimum wage increases on the Lebanese labor market remains a conundrum.

Student(s)

Maggie Jamal Houshaimi

Supervisor(s)

Prof. Iman Attia & Dr. Abdallah Nassereddine