I am often perplexed by public policies people push for without recognizing the many negative effects they can have. Mark Perry in “Minimum wage hikes and reductions in ‘non-wage job attributes’” states his opinion that “politicians and minimum wage proponents almost never consider…real-world and economic realities when advocating for a…minimum wage law.” Despite good intentions of minimum wage laws, the results can often be quite different than intended.
The minimum wage is a classic example of a price floor, and when a price floor is regulated above the price equilibrium there will be a surplus supplied beyond the quantity demanded. Thus, with a minimum wage above the equilibrium price, the quantity of labor demanded will be less than the labor supplied by the work force. (I am convinced that one hidden variable explaining the reduction in the national unemployment rate is people exiting the work force when they realize the quantity of labor supplied is above the quantity demanded.)
But in addition to less labor being demanded than being supplied, Mark Perry, in referencing Don Boudreaux’s article “More on the Principles of Economic Principles”, points out that there are other “non-wage job attributes” that employers will reduce in response to minimum wage hikes, so that even if unskilled workers are paid more, their overall conditions may not be improved at all. Among these other non-wage job attributes that affect an employee’s work experience are upward mobility, health insurance, on-the-job-training, workplace comfort, workplace safety, and more. As employers are forced to pay a higher minimum wage, they adjust by reducing costs spent on these other benefits. Because of these negative effects, I think the government should avoid increasing the minimum wage.