Minimum wage laws should be abolished. They are morally indefensible because they cause more harm than good. They are economic foolishness because they thwart the price signal that lets workers and employers arrive at the optimal price for labor.
First, minimum wage laws increase unemployment. As I argued in a post on unions, it is morally indefensible to favor a policy that increases unemployment in order to increase income to a group of people.
Second, minimum wage laws infringe on our freedom. They tell potential employees that they have no right to negotiate with an employer on the full range of benefits and duties that a job might require. When I negotiate with a potential employer while looking for a job, that is a matter between me and the employer. If I do not like the terms offered, I will go elsewhere. If the employer doesn’t like the skills I offer at the price I demand, they will say “no thanks”. What is broken there? Why do proponents of minimum wage laws think they have a right to interfere with my ability to negotiate conditions of my job? Why do they think they have the right to tell employers how much a particular job is worth to them?
Some argue that in some circumstances the employer comes to the negotiation with more power than the potential employee and thus has an unfair advantage. This argument inspires a desire to protect the potential employee from having to accept a bargain that produces an uneven split of benefits. One can probably imagine scenarios where this seems true for specific individuals. If the policy were designed to attempt to identify those specific circumstances some people face, then perhaps it would have some moral standing. But it does not. It applies to everyone, no matter what their circumstances. This policy says to me, if I were a low-skilled worker, you cannot have a job if your skills are not worth the minimum wage. Why would we want to send that message? Why not send the message, â€œSure, you can have a job! Here are the things you can do with your skills and here is what they are worth.â€ Then people have concrete feedback on the value their skills bring in the market and they can make informed decisions about the pros and cons of working and going about improving their skills.
The minimum wage law is another example of implementing social policy through hidden taxes, here coming in the form of regulation. The federal government seems to love doing that. If we really believe people cannot live on under a certain income then we should find a straightforward way to help them that does not interfere with the market forces that keep our economy thriving and providing jobs.
October 4, 2011 postscript. Tim Nerenz just put out a nice post discussing the minimum wage (and a few other things).