The minimum wage provides an incentive to work

The argument

Government assistance to the unemployed is designed to cover a person’s basic costs of living but not much more, meaning that the unemployed living on benefits has close to no disposable income for personal expenses beyond basic amenities. Chris Gouldon at the Joseph Rowntree Foundation found that “new analysis shows that you’re still better off in low paid work than on benefits.” This is because the minimum wage is set higher than benefits in order to incentivize the unemployed to work harder to enter the workforce. When held against unemployment benefits, the minimum wage provides an incentive to work. Because the minimum wage regulation forces employees to pay this base, all workers are guaranteed a fixed basic income (as long as they are able to work enough hours). Without a minimum wage rate, there would be no guarantee that a person would make more working than on benefits, and so fewer people would be incentivized to work, believing that they may even be better off on benefits. The enforcement of minimum wages is crucial to this dynamic because it ensures that people who can work do work because, under this system, working is more profitable than being on benefits. However, while the minimum wage encourages work by promising more money than benefits, minimum wage work does not necessarily provide enough to cover the cost of living. With the cost of living rising faster than minimum wage, more people are struggling to support themselves on a minimum wage income. Therefore, the minimum wage is only effective at incentivizing people to work as long as a full-time minimum wage job provides enough to live on.

Premises

Counter-arguments

Critics question whether the work incentive actually reduces government spending. In many systems minimum-wage workers still qualify for in-work benefits — tax credits, housing support, income supplements — because the wage does not cover living costs, a point the argument itself concedes. On this view the state subsidises low pay whether people are on benefits or in low-wage work, so moving them into employment does not straightforwardly cut public expenditure. Economists also note the effect can run the other way. If a minimum wage is set high enough to price some low-productivity workers out of jobs, the resulting unemployment raises benefit spending rather than lowering it, and the 'incentive to work' is moot for those who cannot find work. Whether a minimum wage reduces government spending therefore depends on its level and on the wider benefits system, not on the incentive effect alone.

Rejecting the premises

[Rejecting P2] Critics note that because minimum-wage work often does not cover living costs, workers still draw in-work benefits, so the state subsidises low pay either way and the saving relative to unemployment benefits is smaller than claimed. [Rejecting P3] Moving people off benefits assumes the jobs exist; if a minimum wage reduces low-wage employment, it can raise benefit spending, so guaranteeing work pays more than benefits does not by itself reduce government spending.