Monday, October 13, 2014

Du sublime aux plus ridicules

It's been a decidedly erratic (typically?) day for French economics. First, we have the announcement of this year's Nobel Prize for Economics going to Jean Tirole. Then we have this from Florian Mayneris and Sandra Poncet, which is worthy of the country that trained the Khmer Rouge...economic cleansing of the least able, ala Chine;
Low wages reduce the cost of not adopting the best production processes. In some developing countries, the absence of minimum wage might thus give incumbent firms little incentive to adopt more efficient but also more costly technologies or management practices; they might also allow some inefficient firms to survive.
Along with their less efficient employees.
In line with this intuition, our results show that in a fast-growing economy like China, there is a cleansing effect of labour market standards. Minimum wage growth allows more productive firms to replace the least productive ones and forces incumbent firms to become more competitive, these two mechanisms boosting the aggregate efficiency of the economy.
Another Great Leap Forward at the expense of those left behind, mon dieu!

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