Why some economists oppose minimum wages
Diversity, Inclusion & Equity Economic Development FinanceSummary
This article from The Economist explains one reason some economists are against minimum wages, or “wage floors”: minimum wages lead to job losses. Firstly, in the past, economists believed that firms hired employees based on their perceived value. With the implementation of minimum wages, firms are forced to pay workers more, essentially making it uneconomic and resulting in layoffs. This belief was challenged in the 1990s when researchers showed that past minimum wage increases did not affect jobs. Some economists suggested that employers previously underpaid their workers, thus when wages increased, firms could absorb the costs without reducing their workforce. Another reason for opposition to minimum wages is the worry that politicians may impose minimum wages that are too high for firms to accommodate without reducing workers. Instead, some economists advocate that wage subsidies are a better alternative. While wage subsidies cost government money, they do not discourage hiring or encourage layoffs.