Raising the Minimum Wage Doesn't Create Jobs: The Cost Hits Margins or Customers

Raising the minimum wage by decree doesn't create jobs: the cost comes from margins or customers

Does simply raising the minimum wage really generate jobs? The thesis circulates widely: higher paychecks lead to more consumption, sales, and hiring. The problem is an overlooked link: the employer paying the payroll before the worker reaches the register. If margins shrink, the increase comes from somewhere: prices, jobs, or closures.

The bar example summarizes it plainly. A bar sells beers for 2 euros, pays the server 10 euros daily, and keeps 5. The rule changes, raising the minimum to 15. The owner has three options: raise prices to 2.50 and risk lower sales, absorb 5 euros in daily losses, or stay alone behind the bar. The fourth option, hiring more staff, doesn't appear in any forecast.

Why does raising the minimum wage not generate employment on its own?

What generates employment is solvent demand: customers with money willing to pay a price covering costs and leaving a margin. Without that demand, the jobs destroyed are marginal ones, held by young, low-skilled workers, and small teams. Raising the minimum wage doesn't create the customer; it only increases the cost of labor.

Some argue that extra income goes straight to consumption, returning to businesses as more orders. The nuance is that this extra cost originates in the local business balance sheet, and that is already cost inflation, whether spent later at the corner shop or an Asian website. That final spending ends up imported only changes the trade balance, not the initial effect.

The Mitterrand case: raising wages with deficits and own currency

The 1981 French precedent is cited as a vaccine. The program included massive SMIC increases, a 39-hour workweek, higher benefits, nationalizations, and expansionary fiscal policy. The theory was injecting purchasing power to reactivate internal demand. The result was the opposite: the bill was paid in inflation, external deficits, and pressure on the franc, forcing the country to reverse course.

The difference with China is the cage. The yuan is not a convertible reserve currency, and capital doesn't flow freely. There, money is printed to finance export machinery and state debt, with price controls, subsidies, and a closed market. Here, with the euro, that margin doesn't exist: if the ECB finances deficits recklessly, the adjustment comes from elsewhere.

What happens when benefits rise more than the minimum wage?

The other side of the coin is the benefit. It is noted that there have been exercises where the minimum income rose more than the minimum wage itself, with one year around 15%. The combined effect is a trap: if working pays almost the same as not working, labor market entry cools. The incentive breaks at both ends, for the hirer and the recipient.

The self-employed don't raise prices when they want; they raise them when electricity, rent, materials, and labor eat them up. The income pact remains a salon toast. In the real world, whoever provides a service or sells coffee passes on the cost or closes the shutters, and Social Security hiring and firing statistics reflect this better than any speech.

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With these premises, the conclusion writes itself: the minimum wage doesn't create jobs; it makes them more expensive. Unless someone finds the formula to decree that customers also rise.