Monday, May 16, 2022

Why minimum wage laws do not increase unemployment

If you have ever taken an Econ 101 class at University, you were probably taught that minimum wage laws have the undesirable effect of increasing unemployment. The logic is straightforward, if you increase the price of anything the demand for it goes down. Your wage is just the price of labor and if the government sets it artificially high employers will find ways to hire fewer workers.

But remember something else your economics professor probably told you once, but then ignored for the rest of the semester. The magic workings of the market hold only under certain unrealistic assumptions, such as perfect competition.

In fact, our economy is highly monopolized and the buyers of labor power, i.e. employers, have greater bargaining power than workers. This means that, in the US, in most cases, wages are held artificially low.  

1 comment:

  1. My first job paid $2.30 an hour. My supervisor told me I was lucky. I just benefitted from an increase in the minimum wage. It was $1.70. I was 15 years old at the time. I eventually went on to get a higher paying job for $3.75, which was more than minimum wage. I was very happy to leave that place. Low minimum wages only hurt workers and help employers.