Monday, October 26, 2015

The Minimum Wage Fairy Tale - In Wonderland, demand curves don't slope downward

Via the Foundation for Economic Education . . .

I spend a lot of time talking and writing about the minimum wage. I do so because it sears my economist's soul to encounter a policy that is as popular with people as it is poorly understood by them.
Opinion polls consistently show that an overwhelming portion of Americans — about 75 percent — support raising the minimum wage. Yet there is no economic principle that is more solid than the one that explains that raising the cost of engaging in some activity (such as employing low-skilled workers) results in people engaging less in that activity.
Just as someone trying to sell a house knows that the higher the asking price, the fewer are the prospective buyers for the house, everyone shouldknow that the higher the wage that a worker charges for his labor services, the fewer the prospective employers for that worker.
This fact holds when the government — through minimum-wage legislation — forces the worker to raise the wage he charges.
Although it's obvious to me that artificially pushing wages up through minimum-wage legislation causes some low-skilled workers to lose their jobs (or to not be hired in the first place), it's clearly not obvious to most of my fellow Americans. So I ask, “Why not?”
Article here:


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