The Minimum Wage

Theory:1) There exists a marginal productivity (Amount of revenue that worker brings their employer per hour of work) for workers2) Because companies compete with each other for workers, a worker's wage will be close to that marginal productivity. (If a worker is making significantly less than their marginal productivity, another person can make a profit by hiring them for slightly more than they're making, and so on until the wage is approximately the marginal productivity).3) A government declaration of a 'minimum wage' doesn't raise the productivity of workers.4) If a minimum wage is set above the marginal productivity of a worker, that worker's employer must either continue paying that worker, losing money, or fire that worker5) Businesses aren't charities, they will not hire workers for a loss6) So the minimum wage can only cause unemployment.The problem people have with this argument is usually that they don't accept the 2nd premise—many think that wages will be significantly lower than workers' marginal productivity, and so a minimum wage can increase wages by decreasing profits. This is based on the idea that low-skilled workers, the ones that would be affected by the minimum wage, don't have the bargaining power required to get higher wages like higher skilled workers do. This, however, is false. If it were true, industries that used low-skilled workers would have significantly higher rates of profit than those that don't. Not only is this factually not the case, if it ever were the case, it would quickly change. We all know businessmen and investors are greedy—they always want to maximize their profits. And so, obviously, investors will tend to invest in the industries with the highest profit rates they can find. If these were industries employing low-skilled workers, then this additional investment would increase the demand for these workers, driving up their wages. And there would always be enough demand to do this—if a certain amount of investment wasn't enough, then profit rates in that industry would remain high, which would attract even more investment, and so on.Evidence:Empirical evidence confirms this conclusion. A study comparing youth employment and minimum wages across states found a significant negative correlation between them. [1] This correlation holds after controlling for other variables that effect employment, like nation-wide business cycles and state-specific trends. This study had the same conclusion—also finding that states with sub-minimum wage provisions (lower minimum wages for minors) reduce the disemployment effects of the minimum wage. [2] A meta-study reviewing previous minimum wage studies found that while some recent studies have found no effect or positive effects because of minimum wages, a strong majority show that the minimum wage does reduce employment. [3] This disemployment effect is long-term—the longer someone was exposed to a minimum wage (especially as a teenager), the worse their employment prospects, even in to their late twenties, because they get less training and skill acquisition. [4][1] http://www.econ.cam.ac.uk...[2] http://www.nber.org...[3] http://www.nber.org...[4] http://www.nber.org...