Students often ask me, what’s the obsession with lowering the minimum wage?
I then explain to them that, in the terms of neoclassical theory, unemployment can’t exist unless the existing wage is higher than the equilibrium wage rate (such that the quantity supplied of labor is greater than the quantity demanded of labor).
Well, we’re seeing that same obsession in the case of debt negotiations in Greece. And Rebecca Wilder demonstrates how unfounded that obsession is—because Greeks work long hours, they’ve already suffered an extraordinary decline in unit labor costs, and because while the minimum wage has risen as a proportion of average monthly earnings that’s because monthly earnings have declined so precipitously.
Why, then, the obsession with lowering the minimum wage in Greece? Because that’s what neoclassical theory dictates and because lowering wages makes workers pay for the mistakes made by a tiny minority—in Greece and across Europe.
