Should Congress Raise
The Minimum Wage?

NO
Many Would Lose Their Jobs

Kevin A. Hassett
Director of Economic Policy Studies
American Enterprise Institute for Public Policy Research

The minimum wage is a terrible and counterproductive policy. While it may appear that the minimum wage helps the poor, it does not.

The case against the minimum wage is based on simple and intuitive textbook economics and mounds of scientific evidence. Suppose that you run a small factory that makes chain saws. You employ a large number of minimum-wage workers, and sell your product around the world. If the minimum wage is increased, then your costs increase. In response to this increase, you will have to raise the price that you charge for your product. Since the price of chain saws is higher, other manufacturers in states or countries that have not raised their minimum wages find that their product is suddenly cheaper than yours. Their sales go up, and yours go down. With sales down, you are forced to lay off a number of workers.

This scenario captures fairly well the type of cycle that has been observed by economists who study minimum wages. While some minimum-wage workers receive higher pay, others lose their jobs entirely, and the number of people in poverty likely swells because of it.

The minimum wage denies individuals opportunities they may desire. Think of it this way: If you asked your parents to allow you to take a summer job and they replied that you could, but only if you found a job that paid you at least $15 an hour, you might think that their position is unfair. They are not allowing you to decide to work for someone unless you find an employer willing to pay you a salary that they think is fair. Shouldn't you get to make up your own mind about that? The same is true when the government sets high minimum wages. By doing so, government takes away opportunity, especially for disabled individuals and first-time workers.

Some have expressed concern that employers may set wages unfairly low. But in today's competitive marketplace, employers must compete to attract workers, and those who pay wages that are too low will lose workers and business to employers that pay wages based on the productivity of the individuals they hire. If some individuals are so unproductive that their value to employers is very close to zero, then we should help them by providing assistance collectively, not by requiring some employer to pay the unproductive person a wage that is higher than the person's work could possibly justify. That strategy just passes the buck to the employer, and is akin to stating that social justice is desirable so long as somebody else pays for it.

While it might look like the minimum wage may improve social justice, it harms the poor instead. Workers historically have noticed this. For example, in 1923, the first recorded minimum wage lawsuit occurred in Washington, D.C. The city had just increased its minimum wage for nurses, and in response the Children's Hospital found that it had to reduce the number of nurses that it employed. In response, the nurses sued (Adkins v. Children's Hospital) in a case that made it to the U.S. Supreme Court. The nurses argued that the minimum-wage law deprived them of their livelihood and unreasonably infringed on a person's right to sell her services. The nurses won!