The minimum wage provides ample fodder to politicians and economists who debate the pros and cons of this controversial law. In the United States, employers must follow a federal minimum wage, and some states and cities have imposed an even higher minimum wage within their jurisdiction. Although advocates point to the need to provide a fair hourly wage to workers, opponents cite several major problems with the minimum wage system.
Some economists suggest that the minimum wage imposes a wage floor that prices cheap labor out of the market, reducing the pool of low-wage jobs. Daniel Mitchell of the Cato Institute, a libertarian think tank, suggests that "businesses are not charities and that they only create jobs when they think a worker will generate net revenue. Higher minimum wages ... are especially destructive for people with poor work skills and limited work experience. This is why young people and minorities tend to suffer most." Put differently: If an employer needs someone to perform odd jobs, and he values the work at $2 per hour, he will not hire a person if the minimum wage is $7 per hour, thus keeping unemployment in low-wage brackets higher than it would otherwise be.
Welfare and Work Incentive
Minimum wages affect a person's willingness to work when labor is deducted from an unemployment benefit. According to Paul Kersey, a fellow at the Heritage Foundation, "the more relief [unemployment benefit] that is offered, the less incentive there is to work. In effect, one works for the difference between potential wages and relief. For example, if the relief is $106 per week, and the offered wage is $110 per week, then in real terms, the individual is being asked to work for only $4.00 per week." Because the increase in net income is so small when working full-time at a minimum wage with 40-hour-per-week stipulations limiting income, compared with working zero hours and receiving a generous unemployment check, it is rational to avoid work.
Limited Anti-Poverty Benefit
James Sherk, a senior policy analyst at the conservative Heritage Foundation, argues that "the evidence shows that (1) a higher minimum wage causes employers to cut back on the number of workers they hire and employees' working hours; (2) the beneficiaries of higher minimum wages are unlikely to be poor because most minimum-wage earners are not poor; and (3) few individuals living in poverty work at minimum-wage jobs or any job." Federal labor statistics suggest that minimum-wage earners are more often part-time youth, including college students and working parents, who may be laboring for additional money but not for their survival. There is little evidence that heads of households work at minimum-wage jobs.
Effect on Minorities
Some experts suggest that minimum wages harm the very minority populations they were designed to support. James Liebler of the Future of Freedom Foundation says that "low-productivity workers tend to belong to the minority groups that the law was designed to aid. Their lower ability to produce stems from differences in education, culture, motivational background, breakdown of the family unit, etc. Comparatively, the productivity of young whites is higher than that of the average minority youth." In Liebler's analysis, white youth out-produce minority youth, and as such, employers are more likely to hire the white youth when they are denied the option to pay a bit less for a slightly less productive minority employee.
Reduced Training Opportunities
Liebler also suggests that minimum wage laws pool low-income, low-skill work into an artificially high floor, removing opportunities to learn new skills and advance in a job or trade. "Instead of raising their income, the actual effect of the law is to cut off the bottom few rungs of the employment ladder, rendering it harder for low-skilled workers to achieve moderate-paying jobs," he said, in a 1995 study. The logic is straightforward: If all low-wage employees are pooled into a single wage bracket, developing employees will not receive crucial training, because the jobs will go to people who can already perform the work without training. Thus, the developing employees will enjoy fewer advancement opportunities.
- dispute for the money image by ktsdesign from Fotolia.com