The Government Should Eliminate the Minimum Wage

I. UnemploymentThe minimum wage drives up wage costs to employers, thus making it more prone to laying off, especially the less skilled workers like teens and minorities and low wage jobs in general. I. a. GeneralThrough a hypothesis, we can see generally why the minimum wage increases unemployment:1) There exists a marginal productivity (the amount of revenue that worker brings their employer per hour of work) for workers.2) 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 worker.5) Businesses aren't charities, they will not hire workers for a loss.6) So the minimum wage can only cause unemployment. This can be showed graphically here: [14]"The new demand curve D'D' will now in­tersect the supply of labor at point E instead of point C. Total amount of labor now employed is reduced to BE, and EH are now unemployed as a result of the union action. "[14]So essentially, the minimum wage, assuming it works perfectly, can only increase the salaries of workers by as much as an equivalent decrease in salaries to other workers, meaning it's a zero-sum policy. In all cases, however, perfect efficiency is not attained, and the minimum wage becomes a net loss policy. Statistical and empirical evidence can support this theory. Economists have studied the job-destroying features of a higher minimum wage. Estimates of the job losses of raising the minimum wage from $4.25 to $5.15 have ranged from 625,000 to 1,000,000 lost jobs. It is important to recognize that the jobs lost are mainly entry-level jobs. By destroying entry-level jobs, a higher minimum wage harms the lifetime earnings prospects of low-skilled workers. "[1] If you compare the average from the states (plus DC) with a minimum wage higher than the federal one to those who only obey the federal one, you get an average unemployment rate of 9.34% for the 1st group and an average of 7.88% for the 2nd group. [3][4]This can be seen in this graph: [2]"With all of this recessions significant labor market problems, and the expensive federal efforts to offset them, it's too bad that the minimum-wage law added so many people to the list of those who today cannot find jobs. "[5] As the minimum wage increases, unemployment increases. Why? Because with a minimum wage, companies have to pay more to employees. This means that they have to lay off employees to stay on budget. I. b. Low-Skill Workers I'll focus on teenage and young adult unemployment here. Again, another hypothesis:When the minimum wage kicks in and employers have to start laying off, who, by nature, are going to be laid off first? The workers they need the least or who produce the lowest marginal productivity or production at all. Why? Because their cost-to-benefit ratio (C/B) it higher than with other groups. Who does this tend to affect? The low-skilled and the people just entering the labor force (i. e. teens and young adults) because they have the highest C/B of all workers because their skill is the lowest. Evidence can also back up this claim. "Using data extended to 1999, they find that the effect of the minimum wage on employment has been fairly constant over time, and that there are statistically significant negative effects of the minimum wage on teenage employment, with an elasticity of −0.12 in the short-run and −0.27 in the longer-run. "[6]"A 2006 University of Georgia study found that every 10 percent increase in the minimum wage was associated with a 4.6 to 9.0 percent decline in teenage employment. This finding was corroborated last summer when the 12 percent hike in the minimum wage corresponded with a five percent unemployment spike for teens. "[7]And another graph can show this: [8]"Unemployment in 2006 (teenage) was 4.4%, there was a steady minimum wage. In 2009, after a few minimum wage increases, teenage unemployment was 10.2%. "[8] As the minimum wage increases, teenage employment decreases. Why? Because as the minimum wage eats into companies' profits, they can employ fewer people. And the first people they fire are the unskilled, young employees. Also, "Minimum wage laws affect ethnic minorities the most. "[9] The minimum wage hurts blacks generally. [10]A graph can show this too: [13]It affects minorities because of their low-skill status too. II. PricesThrough the first hypothesis I provided above, we can deduce that employers, in addition to lowering their costs (through laying off workers), would also want to increase revenue, thus they also raise prices. More evidence can back this up. "The federal increase from $4.25 to $5.15 costs California families an average of $133 more per year for the goods they normally purchase. Since higher-income families spend more, they would pay more in absolute terms than lower-income families: up to $234 per year compared to $84 per year. "[11]The minimum wage increases inflationary pressure. [12]"Artificially imposed wages, like those mandated by the government through implementation of minimum wage legislation, will cause prices to increase. "[14] A final chart can illustrate this: [16]"As the chart below shows, over the past 22 years the French minimum wage rate has been consistently hiked at a rate far in excess of the increase in CPI. "[15]As the minimum wage increases, not only do companies fire employees, they also raise prices to help the budget. And in the end, this will make it harder for people, especially poor people, to buy necessary things. That in turn reduces GDP growth because there is less buying, and this will plunge us into another recession. ConclusionAs I mentioned early on, the minimum wage, at best, can operate as a zero-sum game, causing as many wage and price problems as it reduces. In the real world, however, this is not the case, and the minimum wage consistently works as a net loss policy, due to its causing increases in unemployment and inflation. Ironically, the people it is suppose to help, mainly young people and minorities, are actually even more disadvantaged by minimum wage law because of they create a workplace where only the most well-trained employees stay around because they are less of a net loss. Overall, the minimum wage is a destructive policy and should be eliminated. Sources[1]: . http://mises.org...[2]: . http://web.archive.org...[3]: . http://www.foxbusiness.com...[4]: . http://en.wikipedia.org...[5]: . http://en.wikipedia.org...[6]: . http://economix.blogs.nytimes.com...[7]: . http://showmeinstitute.org...[8]: . http://epionline.org...[9]: . http://www.americanthinker.com...[10]: . http://mises.org...[11]: Behrman, Jere R. ; Sickles, Robin C. ; and Taubman, Paul. 1983. The Impact of Minimum Wages on the Distributions of Earnings for Major Race-Sex Groups: A Dynamic Analysis. American Economic Review, vol. 73 (September): 766-778. [12]: . http://www.ppic.org...[13]: Adams, F. Gerard. 1987. Increasing the Minimum Wage: The Macroeconomic Impacts. Briefing Paper, Economic Policy Institute (July). [14]: . http://online.wsj.com...[15]: . http://mitch-alan.hubpages.com...;[16]: . http://www.acting-man.com...