Why Raising The Minimum Wage Is Futile

When politicians debate the minimum wage, it often sounds simple: if we raise wages, workers will be better off. After all, more money in people’s pockets should mean a better standard of living. However, I would argue that raising the minimum wage is a waste of time.

Imagine a government raises the minimum wage from £10 to £12 an hour. Workers initially earn more, but firms also face higher labour costs. To protect profits, businesses often respond by raising prices on goods and services. The result? Workers earn more money, but the money itself buys less.

This is where the idea of real wages (wages adjusted for inflation) becomes important. What matters is not the number on your pay check, but what that pay check can actually buy. If the price of groceries, rent, and transport rises alongside wages, then real wages — purchasing power — may stay flat.

A classic example is the “wage-price spiral.” Higher wages → higher production costs → higher prices → demand for even higher wages. The cycle can leave workers feeling stuck, despite nominal pay increases.

There’s also the question of employment. Some firms may cut hours, automate roles, or hire fewer workers in response to higher wages, reducing opportunities for the very group the policy is meant to help.

This debate underscores a key lesson in economics: it’s essential to look beyond the headline numbers to see the real-world effects. The conversation around the minimum wage isn’t just about fairness, it’s about the intricate relationship between wages, prices, and productivity. While raising the minimum wage may seem like an immediate solution, without deeper structural changes, its impact may be far more limited than it initially appears.