Why The Minimum Wage Is Harmful

Why The Minimum Wage Is Harmful May 24, 2011

As with many laws imposed on the economy, the outcomes and incentives created can differ from the original hopes and intentions of those creating them.  Such is the case with the minimum wage.  The harmful effects of the minimum wage laws are often masked by the claims that minimum wages help the worker and create a fair wage. The reality is that a minimum wage is actually harmful to workers who are younger, less educated, and in a minority ethnic group.

History of The Minimum Wage

By definition, a minimum wage is the lowest hourly, daily, or monthly wage that an employer may legally pay their workers.  The laws enforcing the minimum wage include the Davis-Bacon Act of 1931, the National Industrial Recovery Act of 1933, and the Fair Labor Standards Act of 1938.

The first country to institute a minimum wage was New Zealand in 1894, which established a minimum wage partly to control the use of sweatshops in factories.

Harmful Effects of Minimum Wage

While the original intent of minimum wages may have been noble, the effects are actually quite negative.  Unfortunately, the lobbying of minimum wages by political groups and unions has painted a positive picture for the idea of a higher wage, causing people to neglect the harmful effects of imposed laws.

Negatives of A Minimum Wage

–       Businesses are forced to pay more for labor, thus decreasing the quantity demanded for labor.  They’re simply not able to hire as many people because they’re forced to pay fewer people a higher wage.

–       The younger and inexperienced workers are often left unemployed as employers would rather hire someone with more qualifications than over pay someone who is starting out.

–       The ultimate minimum wage is $0.00, which is the wage received by those who are denied a job due to the fact that employers aren’t willing to hire an unskilled laborer.

–       Workers at or just above the minimum wage will insist on a raise in pay when the minimum wage rises, causing employers to increase pay across the board.  Consumers can expect to see the extra expense passed through to them in the form of increased prices.

Ultimately, it is most often the young and inexperienced worker who is left with no job because the minimum wage laws.  This is unfortunate because the worker may have been willing to sell his labor to the employer for a lesser rate and both parties would have been happy.  Instead, the worker is unable to work at all because the employer is restricted from hiring him (or her) at the level at which they agree.

Have you ever heard this approach to minimum wage?  Did you find it to be interesting?

Just curious… What was the minimum wage when you started your first job?


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