This study by Howard Reed for UNISON has been making a few waves, making the argument that increasing the statutory National Minimum Wage (NMW; £6.31 per hour) to the level of the Living Wage (£8.55 in London, £7.45 elsewhere) would represent a net benefit. But I'm not convinced.
The micro argument
Reed's micro argument is that raising the minimum wage has little, or maybe positive, effects on employment. While noting the counter arguments, he focuses heavily on the argument (Doucouglias and Stanley, 2009) that such evidence is over-weighted due to publication bias for significant findings, and highlights UK studies (for the Low Pay Commission) which together find:
"... no evidence that the recent levels of minimum wage in the UK have produced any adverse effects on employment."
While I'm more open to the negative evidence, I think that's a fair conclusion. But as ever, what matters is the effect at the margin; so far this has been very limited because the NMW has been set to 'tidy up' pay rates, rather than to boost them artificially. At some point, increases to a minimum wage will have sufficient bite that it will make some employment transactions simply uneconomic.
Following Bryan Caplan's argument, the evidence from immigration studies - and this applies especially to the UK - is that demand for low-skill labour is highly elastic at current wage rates. If that's so, then once the NMW gets closer to those wage rates, we would expect to see large, negative employment effects.Read More