Minimum wages and profitability

The debate over the impact of the minimum wage has been one of the most intense and most controversial in the field of economics. This is in large part because the literature on the subject is contested.

On the one hand, critics argue that a price floor in the labour market would result in greater unemployment, since an increase in the wage rate will increase the cost of hiring an additional worker, so firms would employ less (Leamer et al, 2017). Conversely, proponents of the minimum wage assert that the resulting unemployment is inconsequential in comparison to the benefits gained (Cengiz et al, 2017; Allegretto et al, 2018; Rinz and Voorheis, 2018). The supposed benefits include: poverty reduction, improving worker morale (and, thus, raising labour productivity) and offsetting the negative impact of employers with market (monopsony) power.

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