Political crusades for raising the minimum wage are back again. Advocates of minimum wage laws often give themselves credit for being more “compassionate” towards “the poor.” But they seldom bother to check what are the actual consequences of such laws.
One of the simplest and most fundamental economic principles is that people tend to buy more when the price is lower and less when the price is higher. Yet advocates of minimum wage laws seem to think that the government can raise the price of labor without reducing the amount of labor that will be hired.
There is nothing mysterious about the fact that most people start off in entry level jobs that pay much less than they will earn after they get some work experience. But, when minimum wage levels are set without regard to their initial productivity, young people are disproportionately unemployed — priced out of jobs.
Unemployed young people lose not only the pay they could have earned but, at least equally important, the work experience that would enable them to earn higher rates of pay later on.
Minimum wage laws can even affect the level of racial discrimination. In an earlier era, when racial discrimination was both legally and socially accepted, minimum wage laws were often used openly to price minorities out of the job market.
If they thought things through, how could they have imagined that having large numbers of idle teenage boys hanging out on the streets together would be good for any community — especially in places where most of these youngsters were raised by single mothers, another unintended consequence, in this case, of well-meaning welfare policies?
Advocates of minimum wage laws usually base their support of such laws on their estimate of how much a worker “needs” in order to have “a living wage” — or on some other criterion that pays little or no attention to the worker’s skill level, experience or general productivity. So it is hardly surprising that minimum wage laws set wages that price many a young worker out of a job.