An increase of the Federal minimum wage would have adverse effects on employment

Minimum wage increases in theoryThe neoclassical theory on the minimum wage is very sraightforward. The model assumes that the given labor market is competitive (i.e. firms take wages, interest rates, and prices as given), and that there is one type of labor. The labor entails that output is created by a mix of labor and capital, and that the workers in question are on the minimum wage. The firms which are competing for labor (so they must give a wage), prices (so customers will buy there), and interest rates they set an equilibrium wage setting to create an optimal balance to create profit. The minimum wage, if increased, often surpasses this equilibrium. This raises the hiring firms marginal costs and induces two economy harming effects. First, the price of the output (or workers) rises, and therefore the demand for new workers falls. This leads to a reduction in production and hiring, which then leads to decreased employment. At any given time more and more people enter the workforce, and this leads to underemployment and unemployment. Second, the higher wages cause firms to substitute capital for labor in the production process. Overall, the effect on employment tends to be negative [1]. As Murray Rothbard notes, "All demand curves are falling, and the demand for hiring labor is no exception. Hence, laws that prohibit employment at any wage that is relevant to the market (a minimum wage of 10 cents an hour would have little or no impact) must result in outlawing employment and hence causing unemployment."[2] The minimum wage makes it illegal to pay under a certian wage. If you are worth 10 dollars an hour it is unlikely a firm will pay you 20 dollars an hour. If you are worth three, the firm will not hire you for 7 dollars an hour. If you are employed and the minimum wage is raised above your worth, expect to not last long in the labor market unless you accept illegal pay. Regardless, the minimum wage only outlaws jobs which the employer is willing to pay, it does not create any new jobs. Empirical evidence There is a strong consensus amongst the empirical literature as to what the effects of the minimum wage would be on the low-skilled workers. Although the "consensus" notes that a 10% increase in the minimum wage leads to a 1-3% decrease in employment, some studies reach results of much higher (10%, 15%, 40%, etc). Essentially if one looks at the peer-reviewed literature, the question is no longer if the minimum wage decreases employment, the question merely becomes how much [1]. For example, research in Canada (an area very similar to the United States economically) showed that increases in the minimum wage led to a 17 to 44% increase in teenage unemplpoyment, 14 - 43% increase in 20 - 24 year old unemployment, and a 17 - 44% decrease in 16 - 24 year old employment. Further research on low skill workers as a whole yeilded the result of a 33-54% decrease in employment. In the UK, when they instituted a national minimum wage, the amount of minimum wage employment fell .8 - 38%, and the amount of hours worked fell by 15%. Results from Mexico and Columbia yeild this result: Mexico: *time series* -18% in employment (insignificant), *panel study*Mexican skilled workers -.1 to -.5%, unskilled drop 3% (significant). Columbia: *time series* -34% (significant), *panel study* skilled -.3 to -24%, unskilled - 15 to -33% drop (significant) [1]. In the United States, the results are not different. A study done from data after the welfare expansion reveiled this result: "Minimum wages have strongly negative effects on the employment of teenagers and minorities (African American, Hispanic, or both). The author finds that a 10% increase in the minimum wage will decrease minority employment by 3.9%, with the majority of the burden falling on minority teenagers (6.6%). Although the size of the disemployment effects for African Americans is quite large -2.8% (and even larger for African American teenagers, -8.4%), it is the statistically significant effect for Hispanics (-4.9%) that is driving these results. This supports earlier research which found that minimum wages have the largest negative effects on low-skilled employees, such as teens and minority teens."[3] The newest research has shown that the effect may be larger than a 4% decrease. In the US, some studies have found their medium elasticity to be a 7% drop in employment when the minimum wage is increased 10% in New York State [4]. Research done on Santa Fe's minimum wages have found that then the city rose the minimum wage to $7.50 an hour (at this moment is is around 8) they had a 3.2% decrease in overall employment. Those who received little schooling took most of the harm, while those who had a large amount of education took little beating. The effect on the overall unemployment rate was significant, but the effect on the uneducated, those minimum wages supposedly helped, were hurt the most [5]. CONCLUSION In the literature there exists a strong consensus in opposition to increasing the minimum wage. The studies show that minimum wages increase unemployment and that the neoclassical model is correct. Unless my opponent provides strong counter statistical evidence, or a more convincing theory, the answer to this question seems obvious. 1. Neumark, David. William L. Wascher. Minimum Wages. The MIT Press, 2008. 2. http://mises.org... 3. http://www.epionline.org... 4. http://www-rohan.sdsu.edu...