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The minimum wage debate is also conducted along these dimensions, but there is not yet a consensus. The argument for a higher minimum wage is the mirror image of the argument for freer trade: total incomes will fall, but this will be more than compensated by a decrease in income inequality.

The case for increasing the minimum wage has problems in both dimensions: the losses in total income are typically underestimated (when they are not being dismissed out of hand) and the putative reductions in income inequality are almost certainly being overstated.

Let’s examine total incomes first. Labour demand curves slope down: everything else being equal, higher wages reduce the quantity of labour employers demand. And fewer people with jobs means less total income. If the theoretical point is clear — and I’m not aware of a compelling theoretical argument suggesting that employers will react to higher minimum wage by hiring more workers — the empirical evidence is not. Estimates for the disemployment effects of minimum wage increases vary. Pierre Fortin of the Université du Québec à Montréal has, I think, a compelling explanation as to why.

Studies that have found weak disemployment effects — most famously the one published by David Card and Alan B. Krueger in 1994 — were generally performed using data in which the existing minimum wage was well below the average wage. (The U.S. federal minimum wage had been frozen during the Reagan-Bush years, and inflation had eroded its real purchasing power by the early 1990s.) On the other hand, stronger disemployment effects were obtained using data where the minimum wage was already 45 per cent to 50 per cent of the average wage or higher. Fortin’s conjecture is that when the minimum wage is already very low compared to the average wage, increases have little effect on employment. But if the minimum wage is already relatively high, then increasing it will produce stronger disemployment effects.