Prof Imraan Valodia (Potential disemployment effect of minimum wage carefully weighed, February 14) believes economics as we understand it does not apply to the labour market, claiming that labour is not tomatoes. While more complex than Econ101, I think he unfairly dismisses some pretty fundamental laws of economics — if you change the price by dictat, there will be consequences. For example, if the national minimum wage is implemented in a particular labour-intensive industry, capital is diverted from profits to wages. This reduces the return-on-investment and capital will move away to more machine-intensive industries. There are numerous other possibilities of reaction. Valodia himself recognises the world is a complex place. He tells us the committee "did not underplay the potential disemployment effects" and "they understood the importance of a managed introduction of the national minimum wage in a manner that reduces risks". What worries me is why we are laying down a policy w...
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