Letter: Would a minimum wage cost jobs?

Sir: Your lead editorial today on the minimum wage takes a courageous stand against one of the central tenets of free market economic theory. You are absolutely right to point out that the market for labour is quite different from the market for commodities such as tomatoes and bananas.

As you argue correctly, the labour market is based upon a whole system of social and institutional rights and obligations, which is well recognised by the most successful companies and economies. In any realistic theory of the labour market, a minimum wage will not necessarily create unemployment. Empirical support for this proposition is increasing rapidly through a number of recent studies, carried out primarily in the United States.

Sadly, economic policy around the world is still dominated by the spurious propositions of the free marketeers - a minimum wage inevitably creates unemployment, reductions in unemployment always lead to rises in inflation, derivatives markets play a valuable role in the functioning of a market economy, and so on. The economic chaos in the former Soviet Union, with the frightening trade in nuclear material, is a direct consequence of the unrestrained experiment in free market economics that these countries were obliged to carry out.

The main effects of offering 'jobs' at poverty wages are not to reduce unemployment, but to undermine the fabric of society and to force people into various forms of criminality. Your editorial marks an important step in the intellectual debate in Britain on these issues.

Yours faithfully,

PAUL ORMEROD

Kew, Richmond

31 August