Only un will exert a meaningful pressure on wages. A major dynamic process is that um rises over time, contributing to the phenomenon of hysteresis. Labour market processes and wage settlements might stay stable in terms of un, i.e. the “normal” unemployment rate, but they shift in terms of u, the overall unemployment rate.
One may wonder why M is nonzero, when its abolition would create employment ume. The apparent reason for governments is that labour markets are not fully competitive and require some regulation. This issue is taken up again in the next chapter on subsistence.
These integrals don’t say how large the densities are. An indication of how much M ‘bites’ is difficult to find. An approach is the following. Let us define ms such that (for example) 1% of supply has an earning power of less than ms. Similarly, md for demand. Then Table 7 distinguishes six situations. [81]
Table 7: Combinations of ms, md and M
| ms < md | md < ms | |
| Minimum wage irrelevant (M < md) | M < ms < md | M < md < ms |
| Minimum wage irrelevant (M < md) | ms < M < md | |
| See point (b) below. | md < M < ms | |
| See points (a) and (b) below. | ms < md < M | md < ms < M |
There are some notable effects:
(a) On the supply side, if ms < M, then would-be earners of ms < w < M become eligible for benefits. When they accept these benefits voluntarily or from social pressure, they, in a sense, form no real supply. Yet they are supply, otherwise they would not be eligible for a benefit.
(b) On the demand side, if md < M, then there would be a real demand for md < w < M if government would reduce M. But this demand is not relevant when M exists.