Is the Minimum Wage good?

I don't think so. My logic will be clear once the arguments/questions in bold are fisked/answered:

But, the minimum wage helps the poor earn more income.
Assume that you have a business and all your employees work at $5/hr. The government sets the minimum wage at $7/hr. Then, there are 4 ways you can deal with the minimum wage.

  1. Fire some of your employees.
  2. Reduce your profits.
  3. Increase the price of your product(s).
  4. A combination of the above three.

Notice that none of these 4 options is good for the business. In an economy where there are lots of businesses, some employees will be fired because of the minimum wage. The minimum wage ensures, in their case, that they make $0/hr. If the profits are reduced to the point where it's not worth it to continue the business, then in the end all the employees in that business will make $0/hr. The poor are, of course, hit the hardest by increased prices of the product(s).

But, the minimum wage insures that an employer won't take advantage  of his employee(s).
This is a free market we're talking about here. Both the employer and the employee take advantage of each other and come to an agreement about the wage. The market decides the wage. Set the wage too low, and you won't have enough employees. Set it too high, and you'll be flooded with resumes. It's as simple as that. For example, the wage for working 8 hours a day in a shoe factory differs from market to market. In China, it would be close to $0.5/hr. Whereas, in the U.S. it would be something like $5/hr. If one were to have a minimum wage of $5/hr in China, most of the shoe factory workers would lose their jobs.

Why would the government keep on raising the minimum wage? Why doesn't the government just provide more welfare?

For politicians to provide more welfare means that they either have to cut spending or raise more revenue. For most politicians, revenues are increased when taxes are hiked and tax hikes are politically not popular. There is no cost for the politician who supports the minimum wage. The costs are incurred by the fired employees, the business itself, and the poor. The politician gets the support of the employees who've had their wages artificially increased. The workers who lost their jobs might put the blame on their heartless employer. It's an easy win for any politician.


Hmm, indeed. The people who are hurt the most by the minimum wage are the poor. The poor workers are mostly unskilled. It's not helpful to make the entire economy off limits to them since any wage is better than none. A vast majority of workers don't perpetually work at the minimum wage. That job is usually their first. The experience and the discipline helps them to climb the financial ladder. At present, less than 3% of the labor force in the U.S. works at the minimum wage. If the minimum wage was not present, then more of the poor would be employed. That initial experience would help them to earn more in the future.

"[The minimum wage is] the most anti-black law on the books."
-- Milton Friedman, Nobel Prize in Economics (1976).

Government should have no business in enforcing a wage limit regardless of whether it's upper or lower. It distorts the free market. Some are paid more than they are worth, some become unnecessarily unemployed and some who might have gotten a job in the near future are left unemployed. The minimum wage hurts and, in some cases, destroys business. Therefore, the minimum wage is not a compassionate policy. Supporting the minimum wage might make you feel good but it's the result that matters. If you wish to help the poor, then think and don't support such feel-good laws. 

Sources and further reading:
The Minimum Wage Good Intentions, Bad Results by Roger Koopman.
Minimum Wage Causes Maximum Pain.
The Sin of Wages by Steven E. Landsburg.
"Show Me The Money: The Minimum Wage Debate" at Uncommon Knowledge.

November 30, 2004.


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