Wages are not set by fiat, even in the U.S. economy, which is severely distorted by government privileges. Wages, rather, are determined by supply and demand. If the price of unskilled labor rises, why wouldn’t employers buy less? No employer could long pay a worker more than the value he produced for the firm. That’s why economic theory and empirical observation tell us that an enforced minimum wage destroys jobs, degrades the quality of other jobs, and prevents new jobs from being created.
If the advocates of the minimum wage really cared about people with low skills and low incomes, they’d support elimination of the myriad government barriers to entrepreneurship and small-business formation, which keep people down. These include occupational licensing, restrictions on street peddling, and zoning, all of which make it tougher for people living on the edge to start up modest businesses and hire people in a similar predicament.
It’s no coincidence that these government barriers to self-employment exist: Established firms, which are always well-connected to the governing elite, dislike the free-wheeling competition that would grow out of a laissez-faire approach. It threatens their dominance.
The failure to move against these poverty-sustaining interventions indicates either that the self-styled champions of the poor are ignorant of economics or that they are poseurs. Let’s not forget that the biggest boosters of the minimum wage are the leaders of organized labor, whose members’ incomes are far above the minimum. Before we assume the motive is humanitarian, let’s recall that such legislation was first proposed years ago by people who wanted to exclude their competition—particularly blacks and women—from the marketplace.
Economist Russ Roberts points to another bad consequence of the minimum wage:** It “encourages exploitation” of workers by creating a “reserve army of the unemployed,” since a legislated minimum creates a labor surplus.**
The lefties are ignorant or they really are determined to keep the poor down.
Please, lefties and conservative supporters of this ridiculous interference in the market (who somehow consider yourselves capitalists and free marketeers), please defend the minimum wage. Please address the concept of supply and demand for labor and the impact of price controls on it. Or better yet, stop defending it and ask your legislators to get rid of it.