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Here’s The Proof, The Minimum Wage Kills Jobs

A Richard Murphy

Professor of Practice in International Political Economy, Richard Murphy of City University – usually known around here as the Senior Lecturer (for that was his pay grade) at Islington Technical College (for that’s what the bit of City U was before his arrival) – has for some years now insisted that raising the minimum wage will have no effect whatsoever on levels of employment.

Actually, not quite true. He’s said that by moving income from the rich to the poor employment will rise. For the rich save money, the poor consume all their incomes, the raising of the minimum wage thus increases aggregate demand. There is even a glimmer of truth in the contention for there is that marginal propensity to save/consume. Given that the savings rate for the richer among us is around and about 15% then aggregate demand will indeed rise as a result of a transfer from those richer to those poorer.

Of course, that’s not the end of the process. We also have the effect that people employ less of something more expensive and it is the net of that and the MPS – and any other things lying around – that matters. But we’ve got it on that authority of the Senior Lecturer that raising the wages of the low paid is beneficial.

Until today that is:

I really cannot see the price of labour rising significantly though: in sectors such as care and hospitality margins are already very small and there is strong price inelasticity – meaning that capacity to pass on wage increases will be very low.

Now that is amusing. Inelasticity means demand for the output doesn’t vary much with respect to changes in price. Thus a rise in price to pay the higher wages – everyone faces the same wage rise so yes people will attempt to raise prices – can be pushed through without reducing demand very much. Exactly the opposite of what he means to say.

What he means is elastic. But given that is what he means then he is insisting that a rise in the minimum wage – why wages rise doesn’t matter here – will have a large effect upon employment. The minimum wage kills jobs that is:

It is more likely that we will see business failures rather than significant increases in the number of lower skilled workers already in the UK taking these jobs, which are already available to them.

The challenge that this move represents is, then, to the UK economy as a whole, where during any period of transition to whatever new labour rates emerge there will be periods of major disruption in some sectors.

These disruptions will, I suspect, be enough to have a serious impact on overall employment: it will not just be low paid jobs that will be lost as a result of this transition as whole companies fail.

So, there we have it. Raising low end wages doesn’t affect employment, but raising low end wages does affect employment. The explanation for the difference here is that at one point it is politically convenient to make the one claim, at the other t’other. Thus the entirely opposite claims are made at those different times.

I condemn it.

Our path towards fascism continues.

Theresa May’s once predicted Nasty Party not only exists, but is in power.

We could pay a terrible price for this.

See? This is the Tories raising low end wages. What Tories do is bad. How could it be otherwise for a Widmerpool?

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3 years ago

I think this is just Tories bad and must stop doing bad thing isn’t it?

3 years ago

Weelllll…… the definition of Fascism *is* the State telling private business how to run their business, so if you squint at it, the minimum wage is Fascism.

3 years ago

Tim, it is emphatically demonstrated that the NMW decreased employment despite the ban on sacking any individual as a response to the introduction of the NMW. In the British Textile industry that Tony Blair chose as a poster child for his “reform” some 90% (Savile Row was little affected as minimum wage is insignificant to the cost of a Savile Row suit) of workers lost their jobs, many due to the insolvency of their employers who were not allowed to sack workers who cost more than the value of their output.
Why bother with Murphy on this one?

David Morris
David Morris
3 years ago

Why oh why would anyone listen to anything that RM has to say ?

Andrew Carey
Andrew Carey
3 years ago

I think the conclusion is right. If the bad guy proposes good policy, then the policy should be opposed. People might like it, and the bad guy gets re-elected. We don’t want that. Obviously for some extremes of policy ( say not jailing the poor or evicting foreign nationals in the top 5% of the income or wealth distribution to reduce inequality ), the virtue signaller would come down on the right side, but most serious policies can be debated either way up to a point, so you judge the people behind the policy. Saves time. It’s stereotyping in a… Read more »

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