Further academic support for the minimum wage
In his latest blog, Bill Mitchell, one of the fathers of Modern Monetary Theory, argues compellingly for the lift of the minimum wage in the UK as well as the minimum wage’s case in general and gives an insightful analysis on the positive effects of the introduction of the UK Low Pay Commission in 1997.
Indeed, by now one has to ask whether the opponents of the minimum wage have anything on their side but mere theoretical humbug derived from the utopian world of perfect competition and perfectly efficient markets. The empirical facts, for one, speak a clear language: As the studies cited by Mitchell corroborates (for there is a wealth of equally positive assessments of the minimum wage), a modest minimum wage, set by an independent commission not only doesn’t wreak havoc on the general job market as is always trumpeted by its opponents: It also doesn’t even hit the market for low and relatively unqualified jobs!
I concur completely in Mitchell’s analysis that the main point about the minimum wage - so obstinately ignored by its detractors - really is this: In the calamity the Eurozone is presently in, it’s first of all a shortfall of aggregate demand lying at the heart of the crisis. Whoever says this rings a familiar Keynesian bell is right, of course: For the present crisis only serves to confirm once again Keynes’s astute insight that in an economy stricken by a banking- and balance sheet-, that is monetary crisis, aggregate demand is the critical component to be revitalised. Yet, against Keynes’s suggested remedies, instead of lavishing billions and billions on doubtful fiscal stimulus packages, the better, for more effective approach would be to lift disposable income directly by raising or introducing a minimum wage. Hopefully, Mrs Merkel, of all politicians in the Eurozone, will finally wake up to this reasoning as indeed she has been indicating in the recent past.