(Original post by TopHat)
I think the point raised about businesses not necessarily expanding to hire people is a very valid one. NMW causing unemployment only applies in markets which have elastic or unitary elasticity, like so:
But in steady state markets which so little to no yearly expansion and thus perfect inelasticity, NMW doesn't actually cause more unemployment, it just reduces the profit margin, like so:
Even if demand is not perfectly inelastic, but still moderately inelastic, while having a NMW does increase unemployment, overall it increases the aggregate amount of wages received by workers, which is shown below as the blue area is larger than the red area.
That makes the trade-off not worth it, to my mind. Overall, if demand was inelastic, it's hurting more than helping. Minimum wage only has a negative effect when demand is unitary, or elastic. Otherwise, it can do good.
As such, I'd feel a lot more comfortable supporting the bill if there were something like this;
"Each year, the minimum wage is to be reduced by 20p. If, at the end of any given year, the aggregate wage paid to those earning up to the minimum wage +66% decreases, then at the end of the year, rather than the minimum wage being decreased, it is to be reinstated at the previous level."
This combines a staggered retreat with the ability to see if we've moved into an area of demand inelasticity. It's also more grounded in reality - rather than relying on theory, we'd get to see the true impact of what the NMW was doing.
Sorry for the boring economics 101 graphs, but they help me communicate what I'm trying to say better. I hope you can see what I mean.