SOCOL CRISTIAN| MARINAS MARIUS MINIMUM WAGE AS A PUBLIC POLICY INSTRUMENT – PROS AND CONS 1. Minimum wage impact analysis perspectives Generally, the decisions to introduce/increase the minimum wage are opposed by reactions that are typical to the neoclassical liberalism rhetoric: only negative effects will ensue, youth unemployment rises, workers migrate to the informal sector of the economy, etc. If this were exclusively the case, the literature would be unanimous in empirically confirming the neoclassical conclusions and the researchers would gradually lose interest in the topic. In this context, we propose taking this topic out from the neoclassical paradigm and approaching it from a more complex perspective, based on theories that refine the traditional approach, as well as on the particular features of the economies that implement a policy of this kind. Thus, the existence of a monopsony in the labor market and the efficiency wage theory lead to the conclusion that there is not always a trade-off between higher wages and employment in an economy. In addition to that, the macroeconomic approach to the effects of the minimum wage reflects the positive impact on the consumption of the households of minimum wage workers. Their greater budget constraints make them spend to a greater extent the additional income, generating an increase in the aggregate demand and in employment. Even though the number of employees may decrease in certain companies as a consequence of the additional payroll costs, it will increase in other companies as a result of the higher incentives granted to certain categories of employees for entering the labor market, as well as of the higher aggregate demand. Perfect competition vs. monopsony in the labor market According to the neoclassical economic theory, introducing/increasing the minimum wage above the equilibrium rate in a labor market close to perfect competition results in higher wage costs and lower employment, particularly among the younger and lower-skilled population. The adverse effect on employment may also arise if the companies confronted with the minimum wage increase transfer the additional costs to prices, with a negative impact on the demand for the demand for their products and consequently on the volume of labor required. The minimum wage tends to deepen the segmentation of the labor market, as it will cause a contraction of employment in the lower productivity sectors, while the impact on the higher productivity ones will be extremely low. On the contrary, if the labor market is closer to a monopsony, the increase in the minimum wage can generate higher employment. This is conclusion applies to the labor market sector with low wages and dominated by a company with high market power. In such case, that company, acting on a low­skilled local labor market, can fix wages that are below the productivity level. When confronted with the rise of wage costs generated by the increase of the minimum wage, the employers will be stimulated to maximize their profits by expanding production and employment(the monopsony effect). The labor market supply is the aggregate of the individual labor supplies of the workers who make decisions concerning the effort made depending on wage(w). In a perfect competition market, none of the many companies is able to fix the wage level, but only to decide on the number of workers they can hire in the context of the given wage.Therefore, such market strikes a balance when the labor demand equals the labor supply. The imposing of a minimum wage that is higher than the equilibrium rate causes a decrease in the labor demand of companies, as well as an expansion of the labor supply aimed at obtaining a higher income. The result is a labor supply surplus, i.e. unemployment, among those categories of employees that could have been paid the equilibrium wage, but not the minimum wage, in the absence of additional productivity gains. As a rule, the unemployed will be lower-skilled workers or young people who entered the labor market recently. 4