The main argument for government legislation has traditionally been the protection of the people at the bottom of the pay scale. But now a new reason for the minimum wage has seen the light of day. It is espoused by Alfred Kleinknecht, a professor in the Economics of Innovation Department at Delft University of Technology. According to Kleinknecht (1998), removing labor market rigidities — and a free market does this — may indeed be advantageous for firms in the short run. Yet it in the long run it is harmful, since removing institutional rigidities in the labor market discourages product and process innovation, which in turn reduces productivity growth.
