Actually, raising the minimum wage does more harm than good at those who are at the bottom end of the economic ladder. The damage comes from multiple directions.
(1) Some marginal businesses -- those just barely making enough to stay in business -- close their doors, putting their workers out of work.
(2) Those who do not close their doors could try to reduce their wage burden by cutting back on hours, cutting back on benefits, or cutting back on employees. Increasing prices could reduce demand enough to make it possible to reduce the size of the labor pool.
(3) Automation becomes more cost-effective. Raise the minimum wage, and watch Wal-Mart increase the number of self-service checkout counters at its stores. Indeed, Wal-Mart may very well be seeking an increase in the minimum wage precisely because it can avoid those costs through greater automation that its competitors cannot afford.
(4) Others who might have otherwise stayed out of the labor pool -- particularly high-school and college-aged kids and spouses who would otherwise have stayed home or pursued other interests -- now have a stronger incentive to enter the labor market and compete for the same jobs. The losers in this competition are the inner-city youth who get replaced by these more middle-class employees.
Alonzo Fyfe
Atheist Ethicist Blog
Re: First Minimum Wage Increase Since 1997 Voted Down
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