Steep minimum wage increases raise unemployment

Minimum wage increases almost always raises costs, which results in job losses in the formal sector and job openings below minimum wage in the informal sector. However, there is nothing to be done if inflation is already high. Both inflation and unemployment will increase in the coming months.

• In the Anglo-American world, during the second half of the so-called Progressive Era, from 1908 to the 1930s, reform callers managed to radically change labour regulations.

• Child labour was forbidden, working hours were reduced. There were even some instances of paying pensions to mothers. But the focal point was the institution of a minimum wage.

• The unemployment that would result, dubbed ‘dis-employment’ a century ago, was regarded as a social benefit by the so-called Progressives who resorted to eugenics to render exclusionary immigration laws acceptable to the public. The purpose was to exclude the “unemployable”, women, children, immigrants, and “low-races” – Irish, Italians, Hispanics, and so on.

• Even renowned Fabian socialists, such as Sidney and Beatrice Webb, made it clear that “the resulting unemployment would be a social gain because the “unemployable” wouldn’t be employed at the minimum wage, which would be higher than the market rate. The inefficient “others” were seen as ‘parasites’, carriers of ‘social disease’, and enemies of ‘social health’.

• The prominent neoclassical economists of the era, such as Alfred Marshall, Philip Wicksteed, A. C. Pigou and John Bates Clark were against it. However, the American Association for Labor Legislation supported it and it passed.

• Hence, the minimum wage was originally intended to protect “deserving” workers from the competition of the unfit by making it illegal to work for less. It wasn’t enforced or even demanded by the workers themselves at that particular junction.

• Today eugenics is unacceptable. In the modern sense, the minimum wage is supposed to be a transitory wage, and those who work for a minimum shouldn’t account for more than 10% of the work force. Otherwise, it loses all meaning.