perverse effect

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An unforeseen negative consequence of an action or policy that produces exactly the opposite to the intended effect. Free-market economists often claim that labour market regulation has perverse effects; for example, that the introduction of a minimum wage hurts the very people well-meaning reformers are trying to help by raising wages and thereby depressing the demand for low-skilled labour. Free marketeers are not the only ones to use this kind of argument, however, and free-market reforms have themselves been said to generate perverse effects. For example, attempts to stimulate the economy through deregulation simply encourage companies to adopt strategies of cost minimization, which in the long term depress the rate of economic growth. The opposite of a perverse effect is a benign effect, an unanticipated positive consequence of change. It is claimed that minimum wages can generate benign effects; for instance, by raising wages they can reduce labour turnover which, in turn, provides more incentive for employers to invest in training to raise labour productivity. [See beneficial constraint.]

Subjects: Human Resource Management.

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