Saturday, 1 August 2015

Minimum wages and demand.

This CEPR article by John Schmitt claims that one  argument for increasing the minimum wage is that such an increase might boost demand.

The argument there is that the low paid spend a realtively large proportion of their income, thus a transfer of income from employers to the low paid should increase demand.

Er . . . I suggest that’s false logic. Reson is that it costs nothing in real terms in increase demand, thus there is no point in making any sort of sacrifice (e.g. distorting labour markets) in order to increase demand.

As Milton Friedman put it, “It need cost society essentially nothing in real resources to provide the individual with the current services of an additional dollar in cash balances.”

However, as intimated above, that’s not to criticise OTHER arguments for a minimum wage increase.

(H/t to Mike Norman)

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