This is a classic a priori economic argument, and the data do not support it. Here are some studies on the effects of minimum wage increases.
"The Florida Minimum Wage After One Year" Summary: none of the dire predictions of job losses came true, the Florida economy continued to lead the country in job growth, and the unemployment rate continued to decline steadily, while economic growth accelerated.
"The Economics of the Minimum Wage" Summary: minimum wage increases have little or no impact on employment rates.
"Step up, not out: The case for raising the federal minimum wage for workers in every state" Summary: critics argue that, faced with rising labor costs, employers are forced to lay off workers. This claim has been carefully studied by labor economists who have found little evidence that minimum wage increases lead to significant job losses. In fact, the research unequivocally shows that the benefits to low-wage workers and their families far outweigh the costs.
"Myth and Measurement: The New Economics of the Minimum Wage" Summary: recent increases in the minimum wage had no adverse effect on employment.
"States with Minimum Wages above the Federal Level have had Faster Small Business and Retail Job Growth", Fiscal Policy Institute, 2004.
"National Minimum Wage: Low Pay Commission Report 2005." Summary: The National Minimum Wage was introduced on 1 April 1999, with an adult rate of £3.60. Its introduction benefited about one million low-paid workers and had no measurable adverse effects on employment or inflation.
I recommend Alan Manning's "Monopsony in Motion", which subjects the standard economic assumptions about perfect competition to some rigorous empirical testing.
The market for labour is an imperfect market that does not behave in a simplistic manner:
* Markets for labour are relatively inflexible - it's difficult and time-consuming to look for a different job, so it's hard for employees to 'vote with their feet' by seeking employment elsewhere - especially those employees making the least money and having to work the longest hours to make ends meet.
* Because there are relatively few employers compared to a great many employees, employers have market power - they can force wages below a pure market rate because employees have limited options for alternate employment and limited opportunities to seek out those options.
* Higher wages mean lower turnover and hence lower hiring and training costs for employers, which offset the allocative distortion of paying higher than a market rate.
* At the same time, higher wages motivate employees to work harder, which raises productivity and can also help to offset the higher cost of labour.
* When already-wealthy people make more money, they tend to invest it, but when poor people make more money, they tend to spend it. As a result, a policy that increases income to the poor has a bigger impact on GDP than a policy that increases income to the rich.
* When low-income workers make more money, they depend less on government subsidies, which alleviates pressure on public expenditure.
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