Minimum Wage

Young, unskilled workers: These are the people most hurt by the minimum wage. This seems unintuitive, because aren't these the people who would make less than the current minimum wage if it were abolished? Wouldn't a minimum wage force those evil businessmen to pay them a higher wage? Unfortunately, that isn't how it works. Every worker provides a certain amount of marginal utility to a business. Say an unskilled laborer's work provides $4.50/hour of revenue to their employer. If there's a minimum wage above that amount, the worker won't be hired, because hiring that worker would result in a net loss for the employer. This is devastating to a young worker's ability to improve their lives. Economists have shown that a 10% increase in the minimum wage results in a .2% increase in unemployment, the vast majority of those unemployed being youths. [1] The minimum wage laws supposedly designed to help the poor trap them in poverty. Because it is so hard for unskilled youth to get jobs, they don't get work experience. In addition to denying these people work experience, a minimum wage makes the work experience these workers won't get even more important to employers. If an employer wanted to hire an unskilled, unexperienced worker, they would have to train him. Since the employee isn't being productive during the training period, it makes sense for the employer to pay them a very low wage at first, then a higher wage once the employee is trained. But because of minimum wage laws, businesses don't do that. [2] Since they have to pay the minimum wage anyway, it makes sense for them to hire someone who already has experience, so they don't have to waste time and money training them. The long-term effects of minimum wage laws on these people are lower degrees of educational achievement, higher rates of long-term unemployment, and much lower lifetime earnings [2] So what happens to these unemployed workers then? Many become dependent on their parents, or welfare. Others turn to gangs. Because selling drugs is illegal anyway, gangs don't adhere to minimum wage laws, and pay low-level employees several dollars an hour below the current minimum wage. So, because of minimum wage laws, unskilled youth are driven to work for low wages in extremely dangerous conditions. Ex-Cons: One benefit of abolishing the minimum wage would be to help ex-convicts turn their lives around. Say there are two applicants for a job opening. One just got out of prison, we'll call him Carl. Carl used to be a drug addict, but got clean and is trying to turn his life around. The other, let's call him Michael, is a teenager from the suburbs with a perfect resume and good references. The job opening is for low-skilled, entry level job, and pays minimum wage. Who is the employer going to hire? Obviously, he'd hire Michael. Carl, as an ex-con, is more of a risk, and since he'd have to pay them the same wage, the logical choice is to hire Michael. Because of the risks of hiring an ex-con, Carl is never able to get a job, and thus never able to turn his life around. But what if there weren't a minimum wage? An employer would certainly prefer to hire Michael over Carl if he had to pay them the same wages, but what if Carl was willing to work for a few dollars and hour less than Michael? Carl could get his first job, and, once he's shown that he's a reliable worker, move his way up in society. Who Benefits From the Minimum Wage? Unions are usually the strongest proponents of minimum wage increases. At first glance, this seems to makes sense—working class people showing solidarity with other working class people. But what about labor union leaders lobbying and bribing representatives with donations for minimum wage increases? Unionized employees don't work for minimum wage, or even close to it. Labor union leaders never care about, much less lobby and spend money for, anyone but their union members in any other situation, why would they do so for this issue? The answer is that minimum wage laws benefit unions of skilled workers at the expense of un-unionized unskilled workers. For a given task, businesses often have the choice between hiring a bunch of unskilled workers to do a task or buying machines and a few skilled workers to use them. Businesses will always choose the choice that costs less, which in a free market, would usually be the unskilled workers. But that's in a free market; minimum wage laws change things. A minimum wage law raises the cost of the unskilled workers option, meaning that more businesses will hire skilled, and therefore often unionized, workers instead. This means more jobs and higher wages for union workers, which is why union organizers support increases in the minimum wage. Sources: [1] Hicks, Michael J. "Who Lost Jobs When the Minimum Wage Rose?" Center for Business and Economic Research. [2] Neumark, David and Wascher, William. "Minimum Wages, Labor Market Institutions and Youth Employment: A Cross-National Analysis." Federal Reserve Bank.