Why? Let me put the case for a minimum wage in the easiest form I can imagine.
Suppose we concede that minimum wages will cause some significant degree of unemployment (and, yes, this concedes a lot to the opponents of the minimum wage that I don't actually think needs to be conceded).
First, one of the major arguments for a minimum wage is a moral one: people should not be working for wages under the poverty line. The minimum wage is the wage below which people start to struggle to live: they must face an existence below the poverty line. Minimum wages are set roughly at the poverty line, but ideally slightly above it. Many state real (inflation-adjusted) minimum wages in the US have fallen below the poverty line, and for a long time now (Pollin et al. 2008: 17). Secondly, a decent society does not let its unemployed starve: it gives them (ideally) a decent unemployment benefit. So, even if you think that a minimum wage will cause some degree of unemployment amongst youth, that is not a disaster.
In that respect, a minimum wage might be rather like health and safety regulations or regulations on pollution, which might cause some unemployment too, given that they raise the costs of doing business. But this is called civilisation, a tradeoff for more civilised life.
Thirdly, will youth unemployment really be a problem if the economy is run properly? Not if we really had full employment, Keynesian fiscal policy: whatever unemployment that resulted from a minimum wage would be swamped by the effects of massive government fiscal policy. Unemployment would be low.
If you do not believe that argument, then why in the classic era of Keynesianism (1946-1970s) when minimum wages were generous (often above the poverty line in many countries), did we have very high employment? - indeed historically unprecedented high employment.
Also, as I have said above, my argument concedes a lot to the opponents of the minimum wage. But I do not need to concede much of what I have conceded.
People can cite empirical evidence that minimum wages have caused some higher degree of youth unemployment in such-and-such a region or state at such-and-such a time, but other empirical evidence can be cited that disputes this.
Overall, the empirical evidence against the minimum wage is weak or just non-existent. Bill Mitchell explains:
“The winds of change strengthened in the recent OECD Employment Outlook entitled Boosting Jobs and Incomes, which is based on a comprehensive econometric analysis of employment outcomes across 20 OECD countries between 1983 and 2003. The sample includes those who have adopted the Jobs Study as a policy template and those who have resisted labour market deregulation. The report provides an assessment of the Jobs Study strategy to date and reveals significant shifts in the OECD position. OECD (2006) finds that:There is another objection that has been going the rounds (mostly on libertarian blogs): if we make the minimum wage $9, then why not $900? That objection is, quite frankly, brainless.
- There is no significant correlation between unemployment and employment protection legislation;
- The level of the minimum wage has no significant direct impact on unemployment; and
- Highly centralised wage bargaining significantly reduces unemployment.”
The minimum wage is a floor concept: the floor is roughly the poverty line (or slightly above it). That is where you set it, and not well above it.
Not even Post Keynesians deny that excessive wage increases can feed into cost push inflation – wages being a big factor in input costs. But a rise from, say, $7.25 to $9 is quite small. In the real world, whole swathes of the market have corporations and businesses that actively set prices and control them by price administration. They leave prices unchanged for significant periods of time, even when mild to moderate demand changes happen, or even when mild price increases affect their factor input costs. Of course, it could be said in reply that most businesses that are affected by the minimum wage are small businesses. Yet small business is not really the source of cost push inflation: the real cause is serious increases in factor input costs amongst the medium-scale and large corporations.
And many small businesses face much greater competition than large corporations, and their prices are constrained to a great extent by the need to compete.
Pollin, R., Brenner, M., Wicks-Lim, J. and S. Luce. 2008. A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States. Cornell University Press, Ithaca, NY.