A lot of the backers of the minimum wage would like to believe that the minimum wage is a net positive for the economy. They say that a minimum wage enables workers to achieve a certain minimum standard of living. While this is true, it is an artificial figure. That standard of living is a creature of political expediency and political maneuvering. In other words, whoever can get the most votes and whoever can make the most noise gets to set the wage floor.
It is not based on economics. It is not based on any economic reality. It is based on political expediency. This is the problem with the minimum wage. It is a political creation with outsized negative economic implications.
There is a reason why a huge number of people are unemployed. It is not because they are not looking for work. It is because nobody would hire them. Why? Employers won’t take a risk on them. They don’t have the skills.
These individuals, and there are millions of them, are stuck in a chicken-or-egg dilemma. They can’t get a job because they don’t have skills. They can’t get skills because nobody would hire them. I hope you see how ridiculous that chicken-or-egg dilemma is.
The problem is the minimum wage. When the law states that I cannot pay you below a certain level, I have to do an economic calculation. I have to be sure that the amount of money I spent on you can be recovered, based on the value of the work you produce. This is a serious problem when you don’t have any skills. Obviously, the value of your work would be worth less than that of a person with some skills. I hope this much is clear.
Not surprisingly, the minimum wage is then geared to benefit people who already have skills. People with criminal records, people with disabilities, people who are in and out of the labor pool, or people who are looking for flexible work are simply frozen out. In large part, this is due to the minimum wage.
The minimum wage enables employers to take risks on people with low productivity or people with unknown productivity. Once an employer sees that you are actually a productive worker, that person is economically incentivized to pay you more. Why? You can easily walk away with your skills and experience, and go to somebody else who would pay you what you are worth. This is one aspect of real world economics that backers of the minimum wage either refuse to acknowledge or are completely blind about.
If you want to boost employment and increase economic participation, as well as boost the overall economy, you can do well with removing the minimum wage. Would there be riots? Absolutely not. Just look at Hongkong, Singapore, and China. These countries haven’t had minimum wage laws for a very long time. In fact, their low wages help them to build robust economies.