6/29/2004

Would raising the minimum wage help or hurt?

In the article “Ignorant Superstition” by Don Boudreaux (found at http://cafehayek.typepad.com/hayek/), the issue of politicians, such as John Kerry, who claim they will raise the minimum wage is brought up. The article discusses the negative effects this action would cause to the labor market rather than the “positive” ones that economics-ignorant John Kerry thinks it would have.

I personally agree with Don on the matter, I think that raising the minimum wage will have a negative effect on the labor market. When wages are forced upwards like increasing the minimum wage would do, usually firms must compensate elsewhere, either by decreasing their demand for labor, laying workers off, etc.. The law of demand states that as price increases, demand decreases. So as firms are forced to pay higher wages to employees, their demand for labor will decrease and the supply of labor will increase creating a surplus of labor and a shortage of jobs.

The minimum wage issue is a tricky. On one hand, I do believe that there are plenty of people in the U.S. who haven’t had the opportunity that others have had to be successful, and greatly benefit from minimum wage laws. Yet, I think that a raise will only decrease the amount of jobs available, increase the unemployment rate in the unskilled labor market, and encourage those who work for minimum wage, to keep working for minimum wage- the opposite effect of what was wanted in the first place.

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