Is the Minimum Wage Really Beneficial to Workers?

By Matt Simcha
Spring 2009

At first glance, a proposal to abolish the minimum wage would appear to be an attempt to allow wealthy businesses to take advantage of the poor working class. Upon examining the issue more deeply, however, it becomes apparent that there is sound economic theory supporting the notion that just about everyone, including the lower class, would benefit from the elimination of the minimum wage.

The first thing we must consider is that labor is a commodity, just like any good or service, whose price is determined by its supply and demand. This means that the actual price of labor is the wage at which the amount of qualified people willing to do the job at that wage is equal to the amount of people employers want to hire at that price. For the vast majority of jobs, this so called “equilibrium” price of labor is well above the current national minimum wage of $7.15 per hour. However, let’s examine a situation where the equilibrium price of labor for a certain job, set by nothing other than natural market forces, is say $5 per hour. We already know that by law, workers must earn no less than $7.15 per hour, so let’s say that the employer in this situation pays that wage for this job. The wage being offered for the job in question is now greater than the equilibrium wage set by the supply and demand for the job; what will happen? The answer is that there will be a surplus of labor. That is, the amount of qualified people who are willing to work the job will vastly exceed the amount of people that the employer can hire. This, of course, is known as unemployment, and it means that more people who want to work are jobless and have no legitimate source of income. The vast majority of economists believe that minimum wage laws cost the U.S. economy hundreds of thousands of jobs per year.

You may be asking yourself, how would elimination of the minimum wage benefit “just about everyone,” as stated earlier? With business not paying wages above market price, they will run more cheaply and more efficiently. This means lower prices and greater production, which gives you, the consumer, more purchasing power.

One major concern people have about elimination of the minimum wage is that hard working citizens who labor for long hours will still be unable to support themselves. This could occur in some instances, but typically, jobs whose equilibrium wage is below the minimum wage are held by teenagers who are not intending to support themselves, but rather looking for some extra cash while their parents support them. Thus, a person who is working hard but unable to support him/herself would be the exception rather than the rule, and in these exceptions some aid should be provided (the government would still have to give out less aid overall, due to the greater overall efficiency of the economy).

If you are still not convinced, try looking at the minimum wage from a different angle; not as a restriction on employers, but as a restriction on workers. It is essentially the government telling people, “If you’re offered a job that only exists at a wage below the minimum we set, you may not accept that job.” This kind of government encroachment into people’s personal choices needs to stop at once.

Though minimum wage laws are well meaning, they are a major contributor to the single greatest problem that exists in the world of economics, unemployment. Unemployment not only leaves people without any source of income, it also causes the entire economy to be inefficient, driving up prices of many goods and services, making life more difficult for everyone. Elimination of minimum wage laws would reduce the economic burden that is unemployment and make society as a whole better off.

Matt Simcha is a member of the Rutgers Libertarians. He is a School of Arts and Sciences Sophomore majoring in Economics and Statistics.