Faulty economic thinking in minimum wage debate

Dear Editor,

Some faulty economic thinking is predictably creeping into the narrative of the debate for increasing the minimum wage and it has the potential for undermining support for the increase at this time, especially among those not fully committed to it in the first place.

When an increase in the minimum wage is viewed mainly from the perspective of an increase in the cost of living and as a potential drag on economic performance, it is clear that the full picture is being missed and, in point of fact, a false story is being told.

When one considers that the proposed increase in the minimum wage is, by definition, directed at the lowest levels of economic welfare, where spending on welfare is demonstrably insufficient, it should be reasonably obvious that an increase in income at this level of society is more likely than not to lead immediately to higher levels of spending.

In fact, a curious irony in this debate is that those economic agents complaining most about a reduction in economic performance as a consequence of increasing the minimum wage are likely to include the principal beneficiaries from this additional spending by the poor. The recipients of this largesse literally cannot wait to spend it. It will not likely become savings, not even as provision for a “rainy day”.

It is likely also true that those responsible for payment of this increase in benefit to the poor cannot wait in their effort to find ways to pass it on to consumers.

Remember, though, we are all basically consumers and there are times when an increase somewhere in our economic arrangements should correctly lead to a “realignment” within those arrangements.

The rationale for a minimum wage rests squarely on the assumption that there should be a minimum living standard within a society, and our economic arrangements should be adequate to accommodate that.

– Sir William Allen

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