The failure of minimum wage law is that it makes it harder for the young and uneducated to get jobs which give them the experience necessary to move up in the world. The intended consequence here is that people who cannot produce at the level of the minimum wage will either lose their jobs or not be able to find jobs in the first place. Let's look at an example. If you are a worker who is only capable of producing $8.50 worth of labor per hour, and the minimum wage is $9.00 per hour, then the employer is effectively losing $0.50 per hour just to keep you employed. As Milton Friedman once put it, that equates to charity, and most employers are not in a position to participate in that type of charity. So what happens to the employee who is only capable of producing less than the minimum wage requirement? They will not be able to find work.
Some people may ask, "If there were no minimum wage law, what would keep companies from reducing wages to say, $0.50 per hour?" People who ask that question forget that just as there is competition between employees for jobs, there is competition between employers for good employees. Part of the problem with hourly-wage jobs is that their labor pool is saturated; that is, there are many people capable of doing the job satisfactorily. Market saturation causes lower demand, which causes lower prices (in this case, the "prices" we are taking about are the price an employer pays for labor: wages).
If politicians really wanted to help the low-skilled worker, the young, and the uneducated, they should repeal the minimum wage, which would allow such people to work and gain experience. They should also realize that apprenticeships and unpaid internships, despite the negative stigma, are a good way for employers to give young people a chance to gain practical experience. When you raise the minimum wage and outlaw unpaid internships, the people you hurt are not the employers, they are the lowest skilled and least educated workers. The very people such measures are supposed to help are the ones who end up losing out. So, should we raise the minimum wage to $9? No, thanks.
Here's Milton Friedman's take on the minimum wage:
What's interesting is that every time this discussion comes up, this same argument based on a theory is made.
ReplyDeleteBut the actual reality of areas where this has been done proves out the reverse of what this theory claims. When people study areas like San Fransisco (2012 min wage of $10.24) or Washington State (2012 min wage of $9.04) they found that there were no loss of jobs or an actual increase and real price increases were mostly confined to the restaurant industry (1.6% for fine dining to 6.8% for fast food)
The only single study done that claims differently since 2004 was funded by a restaurant and beverage industry lobbyist
I think one important distinction to make is that jobs lost don't necessarily have to be jobs that already exist. It is possible that the hardship may be on future young job seekers, rather than workers who already have a job. It's much harder to account for jobs that never materialize than it is to account for existing jobs that are lost.
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