Minimum Wage

On the surface minimum wage laws seem like they might be a good idea but scratch the surface and the idea falls apart.  "Protecting" workers and forcing employers to pay a "livable" wage are common rallying cries by those in favor of a minimum wage.  However all minimum wage laws do is force more unemployment on the most marginal worker - generally the young an untrained.  Ironically these are the very same people those in favor of such laws claim they are trying to protect.

Briefly federal minimum wage laws came were created by the Fair Labor Standards act of 1938 and initially set at $0.25 per hour and most recently set to $7.25 (some states have rates higher than the federal minimum amount).

When will an employer hire someone?  The obvious answer is when the output produced by an employee is greater than the costs of the employee, including wages, benefits and taxes (this ignores that some firms will choose not to expand, preferring to remain the same size).  Requiring a minimum hourly pay increases the threshold that must be reached before it makes economic sense to hire someone.  Therefore, minimum wage laws decrease employment.

The claim that somehow employers would exploit employees without laws requiring minimum pay are erroneous.  Economics teaches us about supply and demand - at a given price (e.g. hourly wage) there will be a certain supply (employees/labor hours).  Employers would be competing with other employers and employees with other employees, just like for higher end jobs in excess of minimum wage.  The ever changing dynamics of supply and demand would determine the wage rate at any given time (which would be different by location industry and any number of other variables).  It is naive to think that somehow supply and demand do not apply to the labor market.

Casual reading of the chart above is enlightening.  Clearly youth unemployment is significantly higher than the overall unemployment rate and has been since the beginning point of the graph (January of 1948).  Also interestingly spikes in the general population unemployment rate are magnified in youth unemployment rates.  Somewhat worryingly the gap between youth and general population unemployment seems to be growing wider.  While this chart does not "prove" anything it is an interesting data point.

It is easy to enact such laws and then point to the relative few who benefit from a wage increase.  It is impossible to point out specific people and say they were unable to find work because of these laws or point to the businesses who hired fewer workers than they would have otherwise.

Poking the surface of minimum wage laws quickly deflates any argument in favor.  These laws lead to higher unemployment and hurt those in society least employable.