Rather than merely assuming that wage rises and labour regulations cause unemployment, as do many commentators, let’s look at the facts.
Many comparative studies have been done on this subject; typical is one from the Journal of Economic Perspectives (vol 11, no 3, 1997), but just google them yourself like I did, it’s not that hard!
These studies show many things that contradict free-market orthodoxies, for example, the following factors do not cause unemployment:
- Strict employment protection and labour market legislation
- Generous unemployment benefits, provided they are not open-ended
- High unionization, provided it is in a context of co-ordinated bargaining with employer organisations.
Other relevant findings:
- Minimum wage levels only affect youth unemployment when combined with high payroll tax, and do not affect adult unemployment
- Poor education levels correlate strongly with unemployment
- Historically, the amount of work to be done adjusts in line with the available labour supply, rendering attempts to control unemployment by adjusting working hours futile
- A very clear influence on unemployment is demand, which is improved by wage increases.
So there is no clear evidence that wage rises cause unemployment; in general, employers hire as many people as they need, not as many as they can afford!
Obviously they will oppose wage rises, because each individual employer wants cheap staff but well-paid customers! But that doesn’t mean that decision makers or opinion-makers should accept (let alone actively peddle) this employer-centric view as valid economics.
In these potentially dire economic circumstances, it’s time we did let the facts get in the way of a good story.