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October 16, 2006

Larry Elliott on the Minimum Wage

Slightly weird this, as it starts out very Guardian like (Minimum Wage! Wonderful!) and then actually discusses the objections to that view:

A second question is whether the NMW could be increased to become a living wage without costing jobs. The evidence so far is that the NMW has not cost jobs, but clearly there would be some level at which employment would suffer. As Metcalf notes, the NMW has been introduced when the labour market has been strong, and it could be argued that employment in the low-wage sectors would have been even higher had the wage floor been lower.

Unless we've discovered some magical world where demand curves do not slope downwards then of course the minimum wage has both cost jobs and reduced the hours available to those who wish to work for it. But at least he got the Bastiat point in: we shouldn't look at how many jobs there were before the NMW and after, but how many there would be now if we didn't have the NMW with how many there are now.

This though is tripe.

It's not difficult to see why demand for labour has been so strong among jobs paying the NMW. The rich need people to mow their lawns, guard their gated communities and pamper them in restaurants. If your 28% increase means you are on a couple of million a year, you probably don't care if the bloke selling you the Rolex has had a 30p an hour increase. Or even notice.

Sure, it's true that the high income groups probably don't care whether the servants are getting another 30 p an hour. But as the preceeding paragrah points out:

Meanwhile, 60% of people earn less than £20,000 a year, 80% less than £30,000.

At least 60% and probably 80% of the population do rather care that the labour in everything they buy has gone up in price. Because, of course, that portion of the workforce that are on the NMW and are servants to the rich is small compared with that portion on the NMW which caters to the needs of other who are also less than rich.

October 16, 2006 in Economics | Permalink


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I think you qualify for Russell Roberts' Society of Real Economists (SORE).

Qualifications for entry are you should know:

1. Demand slopes downward--people do less of something when it gets more expensive
2. Prices respond to market forces
3. Motives and intentions do not matter. Results and actions do.

Tim adds: Well, I'm not an economist so not really, perhaps an associate member as I emailed to Russ?

Posted by: Tristan | Oct 16, 2006 10:49:27 AM