Authors Iain Begg | Gabriel Glöckler | Anke Hassel ... - The Europaeum

existing practices of wage subsidies and benefits as well as their effects
on skills. Not all interactions are clearly understood and some are still
debated.
For instance, it is still debated as to what extent there is a trade-off between
wage and employment levels at the lower end of the labour market. While
some economists assume that higher wages will always lead to a loss of
employment, the empirical evidence for this is shaky. Well known research
results in the US have shown that an increase in minimum wages did not
lead to employment losses but rather to firms easily adjusting to higher pay
rates. Others have argued that employment losses occur with a time lag. In
a cross country comparison testing the effects of higher wages in different
economic sectors, Lane Kenworthy comes to the conclusion: “There is
reason to suspect that higher wages reduce employer demand for labor
in low-productivity service jobs. But in practice they may not reduce it by
very much and perhaps not at all”. 8 Research on the employment gap in
services in different countries has come to the conclusion that it is not wages
which are the main factors explaining lower levels of employment in low
paying service sectors in various countries, since wages tend to be roughly
equivalent even though the wage structures overall were more egalitarian.
Figure 1. In-work poverty risk in the EU
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After the crisis: A new socio-economic settlement for the EU