The Negative Effects of Raising the Minimum Wage

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"If we took away the minimum wage, we could wipe out unemployment completely because we would be able to offer jobs at every possible skill level."

-- Michele Bachmann

Proponents of raising the minimum wage claim that if the minimum wage was raised, then many economic and social problems would be alleviated. This contention is at odds both with economic principles and years of creditable research. The effect of raising or even having a minimum wage has been studied extensively and the majority of studies have proven that raising a minimum wage does not have the desired effect. Both micro and macroeconomic forces affect the results of raising the minimum wage. The secondary effects of raising the minimum wage are bad both for individuals and the economy as a whole.

The effect of raising the minimum wage reduces employment based on the principle of supply and demand. The greater the cost of a good or service the less demand there will be for that good or service. This principle has been shown to true for labor as well. If the price of labor is free to move based on market forces, hourly pay and compensation will match desire of workers to work (supply of labor) and the desire of employers to hire them (demand for labor). Productivity of the workers combined with the availability of workers, determines what employers are willing or able to pay for labor.

Few of the full time working labor force are affected by the minimum wage. This is often the case because their productivity, therefore their pay, is al¬ready well above it. The law of demand says that the higher the price of a good or service, less is demanded; this is true for computers, televisions, and steaks as well as labor. Because the raise in minimum wage ...

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Unemployment” American Economic Review 93, 1765-1777.

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Minimum Wages on this Transition. Employment Policies Institute: Washington, DC, 1995.

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and Enrollment: Evidence from Matched CPS Surveys. National Bureau for Economic Research: Cambridge, MA, 1995.

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