Economics

Why Minimum Wage is Toxic for an Economy

Minimum Wage
Minimum Wage

Many argue that minimum wage increases the freedom of low-skilled workers by increasing their wage, so they are able to purchase more goods and enjoy more free time. What most people forget, however, is not just that minimum wage interferes with the freedom of the employer to set the amount of money he is willing to pay for certain productivity, but also with the freedom of many people in the labor market.

Since every country has at the bottom of its social hierarchy low skilled and uneducated people for which the system is responsible for poor funding of schooling and a lack of available skill training, these people will now not be able to compete in the job market anymore. By setting a minimum wage, an employer will always choose the more productive and skilled person, because he is forced to pay at least a minimum wage. This means a large part of the low skilled people, who would have gotten a job by offering their services at a lower price, which is the only weapon they have to outcompete more productive people in getting a job, will now face unemployment.

So by trying to increase the freedom of low-skilled workers minimum wage actually denies them the freedom in getting a job in the first place. This is toxic in two ways. First, these people will be unemployed, and second, these people will not be able to become more productive and have a higher wage in the future because they can’t integrate themselves into the job market because the law prevents them to.

Disagree with this view? Write a comment below explaining why and the author will get back to you.

About the author

mm

Libertine

5 Comments

Click here to post a comment

    • I read the argument on Forbes for the minimum wage and I don’t think that it really gets to the core of the issue. Something that really jumped out at me was this quote “No, the minimum wage is necessary to protect taxpayers from the rational desire of firms to get something for nothing.”

      I don’t think the minimum wage is there primarily to prevent exploitation of the workforce, although I am not arguing that that is something that it does, I think the minimum wage is enforced by governments around the world to boost the aggregate demand of the economy. It is a very strong demand side factor that, as Ford found out, can really boost the demand for a product turning a workforce into consumers.

      • I agree that there might be benefits on the demand side, however, the increased production cost for companies also increase the cost for the consumer. And most importantly it denies a great proportion of the low-skilled strata the opportunity of getting a job, which means they will end up as long-term unemployed. This will cost the government and the consumers far more than the boost in aggregate demand. I am also strongly convinced that by having more people in the labor market aggregate demand experiences a greater boost than by introducing a minimum wage, as the Marginal Propensity to Consumer tends to be even higher for those earning below minimum wage. So by not limiting the freedom of consumers and producers through a minimum wage, both demand and supply will increase.

    • That might be your opinion, but generally stating that it ignores the complexity of reality doesn’t really bring us any closer to the truth, right?