Does the Minimum Wage Hurt Workers?

Some politicians argue that raising the minimum wage helps the poor and disadvantaged. While this may appear to be the case on the surface, economics professor Antony Davies explains that the common view of the minimum wage overlooks one important detail: The minimum wage does not force employers to pay a particular wage to every worker; it forces employers to pay a particular wage to every worker they choose to keep.

Using an example, Professor Davies shows that minimum wage increases may make the least productive workers too expensive for employers. Minimum wage increases do not help the worker at the expense of the employer; instead they help the most productive workers at the cost of the least productive workers. What’s worse is that over time the more productive worker likely would have been rewarded for productivity anyway.

The evidence is not just anecdotal. The data show that minimum wage increases have little effect on unemployment among college graduates. Minimum wage increases lead to higher unemployment among high school graduates, though, and significantly increase unemployment for the least skilled, least educated workers. The minimum wage may be a well-intentioned public policy, but it often hurts the workers most in need of help.

16 Comments

  1. Matt Wavle

    Voting in a raise instead of earning it, sends the wrong signal, and is in one way, nothing more than vote buying.

  2. citizen1111

    The only question I would raise is increases in productivity over the last few decades has not lead to an increase in wages. Surely workers should be able to share in increased profits from increased productivity.  The reality is employers, particularly large chains, have done little but funnel those profits up in the form of increased executive compensation and bonuses.  Were it truly as the speaker states, there would be opportunities to be had at a competitor for the excellent burger flipper.  In reality most competitors compensation structures are exactly the same. While I agree top down mandates are generally a negative, I would suggest that there exist a structural problem currently that may require an external actor to address problems in the market.

  3. Emerson Howard

    Does anybody have genuinely strong arguments in defense of raising the minimum wage?

    I would be interested in hearing what some of them are. They has to be some reason why some well-read and intelligent people support the motion.

  4. agavin2342

    Such a relevant video, even today, The minimum wage will always be debated, but this gives the best overview of the full story of raising the minimum wage. 

  5. Sadaf Hussain

    The video comes exact on time when in India there is a lot of fight happening over the Labor Laws and minimum wage, I think all the politician should see this. 

  6. Nathanael Stover

    Citizen1111, the question is not about the profitability of large chains. There is no doubt, but that this wage increase will do much more harm to small restaurants than to large restaurant chains. The question here is about what the impact an increase in the minimum wage will have on workers who are marginally productive. Some will lose their jobs, and some will not be hired. That impact on unemployment is exactly as described by professor Davies.

    To address the real problem rather than making it worse, we need a method that will actually provide more jobs for the least productive workers. A real solution to this problem is discussed by professor Donna Matias here: http://www.learnliberty.org/videos/the-vanishing-entrepreneur/

  7. Adam Billman

    I doubt you’ll see this, but someone else may benefit from this reply so I will reply anyway.

    Let’s consider a real burger place like McDonald’s. The simple fact is that this video (and most examples) overlook the real problem of foot traffic. It does not matter if an employee can flip 100 burgers or 1000 burgers per hour if you only sell 80. What would a realistic number of burgers look like? We can take the extreme case of a busy restaurant that can make an order every 30 seconds and that every order includes two burgers. This amount to 240 burgers per hour. If the average profit per burger is fifty cents, then there is 120 dollars made per hour before wages. If minimum wage were $8 and it took six employees to make 240 burgers, then total net profit would be $72. If we raised minimum wage to $9.50, the total profit would now be $63. If we assume that differences between all employees were negligible, then it would seem that the raise in minimum wage was a good thing.
    But that is only for the busiest points of time. This busy restaurant may only be this busy from 11AM – 2PM and 4PM – 6PM. All other times they may have half as many customers, if that. If they have half as many customers, then profit would be only $3 for those hours. This means that the owner of the business would make the equivalent of $3 per hour for these hours at the new minimum wage rates instead of $19 per hour as before. This gives incentive to the boss, not to fire some employees, but to place them on part time work. All he would need to do to accomplish this would be to have two employees work half-shifts and suddenly his income is back. This leads to the counter-productive conclusion of suddenly having two people per shift going from $64 per day, to $48 per day. 
    Also note that this sunny picture assumes that all workers were equal quality, and that work reduction (or termination) were easy. If they were not, then as people leave the business, the employer would be reluctant to hire anyone. Especially since picking an unproductive worker would be costly in terms of profit.
  8. kevinbuttrum

    This video makes a lot of sense. But we also must remember we all want cheaper priced products, and higher wages. We might achieve both by having more efficient people working, less efficient people suffering, and inferior products. I was a small business owner who had 12 people working for me. It took 25-32 hires to find one mediocre employee, I was never able to find a superior employee, and this was at $12/hr pay, plus rate commission. What I found over and over again was, people want jobs, but they don’t want to work. This is one of the main reasons companies are going overseas, the people in the new countries wanna work, work hard, and be rewarded for their services. We need to lower taxes, reduce regulations, and have people that what to work for a living.

  9. Anonymous

    I’m glad you’re able to make generalizations off of the approximate 30 something employees you witnessed.  that certainly speaks for the rest of the country.  

  10. Anonymous

    Because that would over inflate the dollar.  You raise it to 20, yes, it would destroy jobs because it doesn’t match inflation, cost of living.  Upping the minimum wage won’t make a bunch of low lives over-payed, it would pull people out of extreme poverty to be able to afford average products and services, in turn giving these businesses more money to build up the economy.

  11. Matt Wavle

    Really, and a broken window would also boost the economy too right?  Broken windows and violating the property rights of the owners who employ low skill workers will not solve anything, it will merely worsen the problem.    A ZERO min wage would make those low skill workers able to afford more of what other low skill workers produce and raise their standard of living without even changing their taxable income.

  12. Matt Wavle

    So this is what Kevin says is the solution “We need to lower taxes, reduce regulations, and have people that want to work for a living.”

    You’re sarcastic remark does nothing to address whether or not this is a workable solution, so let me ask you directly, Scott Sourile, Do you believe that high taxes, burdensome regulations and people that don’t really want to work is the solution or does Kevin Buttrum’s solution make better sense economically speaking?
  13. Anonymous

    How about we get rid of it and pay people  $5/hr? No, that’s too high. How about $2/hr? Or better yet, $.55/hr?

  14. Anonymous

    Who or what causes inflation? The Federal Reserve Bank is the biggest cause of inflation with their paper money printing since 1971. And don’t get me started on fractional reserve banking which also causes inflation as well as booms, busts, and bubbles! Can you say credit expansion?

    Another big cause of inflation is actually the Minimum Wage! One or a combination of three things happen when you raise the minimum wage. One, you increase unemployment for low skilled and risky workers (usually minorities), two, prices increase to compensate for higher wages (usually at fast food restaurants and retail stores who hired workers at minimum wage, thus hurting poor and minorities disproportionately), or three, companies who are barely surviving go out of business, usually small businesses (disproportionately owned by minorities).

    See the video on unintended consequences. The minimum wage is well intentioned by most but not all people. Unfortunately it is one of the most racist and poverty inducing policies yet devised by politicians and bureaucrats. If there is one thing you learn from this site I hope it is to judge a policy by its effects, not its intentions.
  15. bosthegreat

    I have not read all of the comments yet so forgive me of somebody mentioned this already. What this video does not mention is employee training. There are many jobs that do not require a college education. But in many cases employers only hire people with college degrees because it would be cost prohibitive to train the employees. Without minimum wage employers could employ trainees at a low rate of pay while they are in training and then when they are trained and productive they can pay more money or have the employees leave and work for somebody else who will pay them more money because they are already trained. This helps both the employer and the employee. The employee is trained in a required skill without going into college debt and the employer does not have to pay the employee as much as required to pay back all of the fluff courses required in college degrees. 

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