Minimum wage laws are against the law of supply and demand. Wages are based on the supply of and demand for labor. If the supply is low, wages will be higher and if the supply is high, the wages will be lower. If the demand is high, the wages will be high and if the demand is low, the wages will be lower. The market price of an individual labor’s wage is determined by the supply of and demand for particular skills of that labor. Employers pay the lowest price for the specific skills and labor attempts to find the employer paying the highest.
If the consumer does not value a product in the market, the prices of all factors involved in the production of that product including labor will fall and vice-versa. Real wages will also rise if the workers become more productive.
If the government through legislation raises the wages, the demand for labor will fall and some labor will not have any employment. It is more likely that the less experienced and young workers will be the ones at the receiving end. Minimum wage legislation prices the least employable out of the market and makes them unemployable. If an employer feels that a worker is not likely to produce at least the value of the wage paid to him.
Increase in minimum wages pushes up the cost of individual businesses. Most businesses will pass on the increased in the wages to the end consumer.
Minimum wage legislation will inevitably create unemployment. The ones who are most affected are those at the bottom of the economic pyramid. Labor valued by employers at less than the mandated minimum are likely to be unemployed. It increases unemployment amongst the young and unskilled.
The most obvious beneficiary of minimum wages legislation are unions and their members. The median weekly wage for union members is higher than for nonunion workers. How successful an union is depends on its ability to maintain high wages and job security for its members or else it will loose its members. To obtain higher wages, it becomes necessary to exclude some labor from the market. Only a small percentage of the population will be benefited by increase in the minimum wages. This benefit comes at the expense of the least experienced, least productive, and poorest workers.
Supporters of minimum wage legislations claim that without minimum wages employers would drive down the wages to extremely low levels which would make it very difficult for the workers. This is just not true. Many businesses pay higher wages than mandated by law.
Increasing the minimum wages will not result in an increase in the real wages. Although minimum wages have been fixed over the last few years, the average pay in the United States had been increasing steadily. This is not due the efforts of the policy makers in Washington DC. Any attempts to increase the minimum wages would have a negative impact on the economy. It will affect the capacity of the economy to generate prosperity for the less skilled.
Instead of trying to influence minimum wages through legislation, the government could do very well to ensure a booming economy in which lots of businesses are opening and expanding thereby increasing the demand for labor which in turn increases the wages.