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The standard economic treatment of this issue has it that minimum wages cause unemployment of low-skill workers. The argument is that if employers can’t get more from a worker than the minimum wage they’re required by the state to pay, then they won’t employ them. Strange then that virtually all developed nations have a minimum wage. An alternative to the standard economic view is that if there is a tendency for minimum wages to cause unemployment amongst the unskilled, then this provides a powerful incentive for them to seek to raise their skills through education (which is often facilitated by the state). Looked at from this perspective, minimum wages do not cause a rise in the unemployment rate. What is more, they have the advantage that they raise the skill levels and the earning capacity of previously unskilled workers. It has also been argued that minimum wages call forth more individuals to join the workforce and thus result in higher levels of national output.
Professor & Head of QUT's School of Economics and Finance, Tim Robinson
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