The Swiss international was stripped of the captaincy after an incident with the crowd in the 2-2 home draw with Crystal Palace last month.
But Merson wants the fans to get behind Xhaka, instead of getting on his back.
He told Sky Sports: "I haven't been his biggest fan but I can understand what he went through the other week was hard to take.
"It's never nice to be booed by your own fans. He's not the most talented footballer but he gives everything he can.
"He makes mistakes but he always turns up. He's never injured, he always gets out on the pitch and looks for the ball.
"It's frustrating because if he could have that time again he probably wouldn't have done what he did but he cares, he cares."