The minimum wage debate never really goes away, but in an election year with politics on everyone’s brain, the issue bubbles to the top again. In the US, some advocate raising the federal minimum wage from its current level of $7.25 to $17 or more. Economists argue, politicians pander, workers protest, and social media addicts meme. Here are a few thoughts on the issue, which I hope will clarify some things.
The basic logic of the law of demand is that if something becomes more expensive, people will buy less of it. That goes for the labor market also. That means that we could see some unintended consequences if government tries to make labor more expensive. Making labor artificially more costly means employers will find ways to get by with less of it. That may mean using more machines instead of people, in which case the people who are most easily replaced by machines will be let go. The self-service kiosks you see in many fast food restaurants are a good example of this, as they replace the person whose job it is to listen to your order, punch it into a machine, and hand you a receipt. Some of that replacement is going to occur anyway with the advancement of technology, but if you’re concerned about machines replacing people because of the cost savings machines represent, the last thing you would want to do is make people even more expensive with a higher minimum wage.
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