Minimum Wages, Unemployability, and Relief: A Theoretical Note

Abstract

Will the enactment and enforcement of minimum wage legislation increase unemployment and unemployability in the occupations which it covers? The major argument on the affirmative is obvious. Wage rates will outrun marginal value productivities at existing levels of employment, and the levels of employment will have to fall.1 The major arguments on the negative run to a higher degree of sophistication. They stress (1) increased purchasing power and increased demands for goods raising productivity schedules to meet new wage rates at existing employment levels, and (2) increased efficiency of labor resulting from higher living standards. The first of these arguments on the negative has received analysis at the hands of Mr. Weir M. Brown in a recent number of the American Economic Review2-without, in this writer's opinion, evading question-begging assumptions. The second argument is tantamount to a charge of circularity against the entire marginal productivity theory of distribution, as applied to the lower wage groups. For by this version, it is rather productivity which depends on wages, in the lower wage levels, than wages which depend upon productivity. We shall concentrate our attention upon this second argument and its consequences to minimum wage policy.