Question

What’s wrong with economism? How does economism jar with human nature?

Answer 1

According to economism, demand and supply curves show that a minimum wage increases unemployment. But there is no direct relationship between minimum wage and unemployment. The norm is that increasing the minimum wage would not cause unemployment to rise. The basic reasoning for the former relation to hold true is that firms substitute labor with capital when wages rise at all but there are employees which cannot be replaced easily which also have enough market power to sustain. It induces employers to hire more low wage workers. All these factors cannot be incorporated in the simple demand and supply model with minimum wage.