Minimum Wage

For the first time since 1997 the minimum wage in the United States will be increased. The current federal minimum wage in the U. S. is $5.15, before the end of this summer it will be increased $0.70 an hour to $5.85, in 2008 it will rise another $0.70 and buy the end of 2009 the minimum wage will be $7.25 an hour.

Take a few moments to understand what his means to everyone. Unskilled workers at fast food restaurants will be making over $7 an hour. Have you been to a fast food restaurant lately? Have you ever worked at one? There is no way this work is worth $7 an hour. Think about what this will do to the cost of a hamburger, it is already about $1 for a lousy hamburger. Think of how many more illegal immigrants will get work at much lower wages than legal citizens due to this legislation.

For many years it has been a matter of conventional wisdom among economists that the minimum wage causes fewer jobs to exist than would be the case without it. This is simply a matter of price theory, taught in every economics textbook, requiring no elaborate analysis to justify. Were this not the case, there would be no logical reason why the minimum wage could not be set at $10, $100, or $1 million per hour.

Minimum wage legislation artificially inflates the value of the work and the worker. The entire economy suffers in the form of increased cost, lower overall quality & value, and reduced customer service of the goods and services purchased. Companies are forced to raise the prices they charge and also must reduce their cost of goods sold. They do this by using fewer workers to perform the work which results in fewer overall jobs. This increases unemployment among low-wage workers, harming rather than helping the poorest workers. A greater number of workers are willing to work at the higher wage while a smaller numbers of jobs will be available at the higher wage. Companies can and will be more selective in who they employ thus the least skilled and unexperienced will typically get excluded. A simple classical economic analysis of supply and demand implies that by mandating a price floor above the equilibrium wage, minimum wage laws should cause unemployment.

Effects of Minimum Wage:

Reduces demand for workers. This may manifest itself through a reduction in the number of hours worked by individuals, or through a reduction in the number of jobs.[1]
Hurts the least employable by making them unemployable, in effect pricing them out of the market.[2]
Reduces profit margins of business owners employing minimum wage workers, thus encouraging a move to businesses that do not employ low skill workers.
Increases prices for customers of employers of minimum wage workers, which would pass through to the general price level.[3]
Reduces economic growth by skewing factor-choice incentives away from the optimum choice.[4]
Minimum-wage legislation, by its very nature, benefits some at the expense of the least experienced, least productive, and poorest workers.”[2]
Is a limit on the freedom of both employers and employees. Minimum wage laws make it illegal for employers to pay workers less than the minimum wage. This also prevents workers from being able to provide labor or services for less than the minimum. For example, during the apartheid era in South Africa, white trade unions lobbied for the introduction of minimum wage laws so as to exclude black workers from the labor market. By preventing black workers from selling their labor for less than white workers, the black workers were prevented from competing for jobs held by whites.[5]
Although it is the employer who is fined and/or imprisoned for violations, the workers also lose their freedom, albeit indirectly.
Decreases opportunities for low-skilled workers to gain the training and responsibility they need to move up the wage ladder.
Increases the cost of government social programs due to assistance programs aiding the laid-off/unemployed workers.
Is less effective than the Earned Income Tax Credit at targeting the truly needy, and is more damaging to businesses.
Decreases human capital by encouraging people to enter the job market instead of pursuing further education.
Reduces the international competitiveness of a nation by raising the cost of factor inputs, and therefore output, relative to the level of other countries. It is argued that this is particularly problematic in developing economies.

Minimum wage laws are a self contradictory policy. Let the employees and employers decide what a job is worth.

References

http://www.newamerica.net/publications/articles/2001/the_case_for_a_living_wage
http://www.cato.org/pubs/pas/pa106.html
Aaronson, D. and E. French, 2006. Output Prices and the Minimum Wage. Employment Policies Institute.
Keiner, M. and R. Kudrle, 2000. Does Regulation Affect Economic Outcomes? The Case of Dentistry. Journal of Law and Economics.
Williams, Walter (1989): South Africa’s War Against Capitalism, Praeger Publishers