UCL Discovery

Abstract

Opponents of minimum wages argue that they hurt jobs in Europe; supporters say that they combat exploitation and help the poor. We try to sort out myth from reality. Differing policy prescriptions reflect different views of how the labour market actually works. Contrary to popular wisdom, it is as easy to make a theoretical case against minimum wages as for them. Evidence, not theory, is what is needed now. Relative to average wages, minimum wages have not risen in Europe over the last 30 years; they caused higher unemployment only if they prevented a necessary fall in the wages of the low paid. Second, minimum wages for young workers are often a lower proportion of average earnings in Europe than in the USA. Third, we find no general evidence that minimum wages reduced employment, except perhaps for young workers. The (good or bad) effect of minimum wages has been exaggerated.