The minimum wage in the neoclassical and the behavioural labour market theory

The dominant economic paradigm is neoclassical economics, which must cope with the attacks
from modern streams of economic thought. The article analyses the fundamental differences
in the approaches of the mainstream neoclassical and modern behavioural approach to labour
economics.
The comparison of the neoclassical and behavioural interpretation of the minimum wage points to
the basic differences in the approach to the minimum wage. Neoclassical economics is founded on
the theoretical basis of the competitive market and presents a reserved attitude to the minimum
wage. From the position of positive economics, it demonstrates the decline in employment and
the rise in unemployment as a consequence of this external intervention into market forces.
It is, in essence, considered as inefficient redistribution, which acts as demotivation. Behavioural
economics stems from imperfectly competitive labour markets and applies a normative approach:
it articulates what the minimum wage should be. This line of reasoning leads to the concept of
a “living wage” and a “social wage”.
The empirical studies support both the neoclassical and the behavioural approach towards labour
markets. It would seem suitable to consider markets according to the type of competition and treat
them differently regarding impact assessment and eventual minimum wage introduction.