This is not normally the kind of thing I would write about, but my colleague James Stanley wrote about his opinions on the minimum wage and how he perceives it to be economically unsound. I am very much of the opposite opinion to this, and said I would write a response—there’s only so far bickering on Slack can get you, after all.

You should read James’ article for a full explanation of his views, but his argument is simple—it’s what I learnt in the first few weeks of A Level Economics: setting a minimum wage causes forces employers to pay unskilled workers more than the market believes they are worth (above the equilibrium point), which leads to excess supply and higher unemployment. It makes sense.

However, I think this is too simplistic, and doesn’t take into account the more socio-economic side of the discussion. Higher wages make employees more satisfied, and more likely to stay in their current position instead of trying to find new employment. This means that there are more people in employment at a given time (less churn). It also means there are fewer people starting new jobs—there are costs to employers associated with training new employees, and the potential risk that the new employee might not be as proficient as the old one. The majority of studies into this in recent time have concluded that the reduction in churn offsets the reduced number of available jobs due to enforced higher wages, including the ground-breaking Card-Krueger study which was the start of a change in attitudes towards the minimum wage amongst the economic community. On top of this, the majority of leading economists think that, even if having a minimum wage does have a negative impact on businesses, this impact is so small that it is easily outweighed by the benefits to those workers receiving higher earnings. Because I’m a liberal softie, I think that this is a good trade-off, but it’s worth pointing out that, in the New York Times survey linked above, only some of the economists are liberal softies like me—there are experts from all across the spectrum in the data set.

I guess the standard laissez-faire argument against this is: “if raising wages is good for employers, they would do it.”. Perhaps, but it’s clear the consensus is that they don’t do it, since so many countries across the world feel the need to implement legislation to help workers. Why don’t employers think that raising wages will help them, when the majority of economists think that it will help them and their employees? I would suggest that many employers, especially in small businesses, don’t take a long term view as to the negative impacts of having to replace workers. That’s not meant to be a slight on business owners—it’s easy to understand the point of view that raising wages will be bad for the bottom line, but I don’t think it’s the correct view.

It could be true that, in perfect economic circumstances, a minimum wage might not be required. If there was massive demand for all sorts of unskilled labour due to high growth, the minimum wage could become redundant, and that would be great. But until that happens, I think it’s an important safety net for millions of disadvantaged people across the world, especially given the consensus that the negative impacts of a sensible minimum wage are minimal to non-existent.

Sorry for the dreary topic, I’ll try and stay on the DIY/running topics next time.