What MfM is showing is two ways of reducing the social product. One is by artificially raising wages (thus reducing the demand for labour) and the other is by artificially lowering wages (thus reducing the supply of labour). The question is which one of the two situation occurs in practice.

This reminds me of the Laffer curve. One thing that is never explained (assuming the Laffer curve is a sound model in the first place) is how we know that we're in the part of the curve where reducing taxes increases revenues and not the other way around.

As we know, there have been empirical tests of the effect of minimum wages being introduced in various US states and the result of the research was to show that a minimum wage increased the number of McJobs.

Now, we can look at the question of who has the upper hand in the competition between employers and workers to fix the wage level. If workers are stronger than employers you can argue that you are likely to find yourself in the situation that workers are imposing too high wage levels. If the employers are stronger you can argue that you are likely to see employers imposing too low wage levels.

It follows that with strong unions you don't need minimum wage laws and they are possibly counterproducing. But it also follows that with weak unions you need minimum wage laws to prevent rent-seeking by the employers.

I think it is reasonable to claim that the employers are in the more powerful position. They don't need to hire a worker in order to make a living. They can always eat their seed corn, as it were, whereas workers have to rent out their labour because they have no seed corn to eat. The necessity of a combination of unions and minimum wage laws follows. In fact, if one prefers a "liberal" model in which "corporatist" behaviour as that displayed by unions is undesirable, then minimum wages are necessary.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith