The Easiest to Understand Argument Against the Minimum Wage

Old Car

Image by Pearly85 on Flickr

One of my favorite things about writing, is trying to come up with different ways to take a complex issue and simplify it for others to understand. I find the Minimum Wage to be one of the most frustrating topics in politics, because the most basic and important law of Economic Science–the law of Supply and Demand–already tells us exactly why setting a minimum price on labor is a bad idea.

But Economics isn’t as interesting to most as it is to me, so I wanted to come up with an example to illustrate the unintended consequences of minimum wage laws, without having to talk about supply and demand. I thought it’d be worthwhile to take a look at what the consequences would be if we were to apply minimum price laws to something we’re all familiar with.

Applying the Minimum Wage to Cars

Imagine being told that you aren’t allowed to sell your car for less than $3,000, and say you have an old car that isn’t worth more than $2,000. Would you say you would have a hard time selling it? Your $2,000 car would have to compete with nicer cars that are worth $3,000. Why would anyone buy your car for $3,000 when they can buy a car that is actually worth that much?

This would be a problem not just for you, the seller, but also for all the people that really can’t afford a $3,000 car and would love to buy yours for $2,000. They would be forced to pay more for a car, than they can afford, which would result in them not buying a car at all, or going deeper into debt in order to get one.

Now imagine that instead of a car, what you are trying to sell is your labor and you are being told that you aren’t allowed to sell that labor for less than $10 per hour. Imagine being a student or just someone that doesn’t have many skills, is poor, and just needs a job to at least start obtaining some of the basic skills necessary to move up in the world. Can you see the problem?

You may be willing to sell your labor for $8 per hour, and for the job that you’d be doing, that’s what employers would be willing to pay. But by preventing you from doing so, the government is making you compete with other workers who are more skilled than you are, and are actually worth $10 per hour, making it harder for you to get the job over the more qualified candidates.

Just like when car buyers in my example, decide not to buy a car at all, some employers may decide not to hire anyone at the higher price. He/she may decide to look into automating some of the operations instead.

Some employers will still hire at the higher price, but they won’t hire as many workers as they would at the lower, voluntarily-agreed price. This is easy to see if you picture a poor married couple that can afford two cars at $2,000 each, but can only afford one at the $3,000 price.

If we take emotions out of this discussion, and we mentally substitute employers for car buyers, workers for car sellers, and labor for cars, it becomes easier to see why minimum wage laws make no sense, and cause more harm than good.

While proponents are able to point to minimum wage laws as the reason why some are earning more, they always ignore those who may not be able to get a job at all as a result. The poor and unskilled are hurt the most by these types of laws, and they are precisely the ones democrats are trying to help by raising the minimum wage.

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  • Francis Lane

    I try to come up with simple illustrative ideas too. With regard to minimum wage, why not raise the minimum wage to $100/hour? We’d all be rich!. Well, no. The manager of Burger king would have to raise the price of a burger to cover the cost of paying his employees that amount. He’d have to raise it further, because the price of raw hamburger would skyrocket, the people processing it would have to be paid $100/hour and that cost would be passed along. So now your hamburger costs $50 instead of $5, and your increased income can’t buy you anything more than your old income did. The only people who get screwed are those with money in the bank. Their $1000 used to buy them 200 hamburgers, now it buys them 20. If you’re on a fixed income, you are also screwed.