Why the minimum wage is controversial

This project isn't meant to be political. Sure, I have my own political beliefs, but this is about raising money to combat homelessness and learning things along the way.

In the course of doing this, I have learned that the idea of a mandated minimum wage is controversial to some people.

There are two common arguments against minimum wage laws:

1. Classical economic theory claims that regulations such as minimum wage laws create unemployment.

In its simplest form, the argument is that businesses cannot afford to hire more people if they have to pay more to existing workers. On first read, it seems like a reasonable argument but it ignores a lot of complexities in economies. Low income workers spend the majority of their income on goods and services rather than financial assets, and the less people are paid, the less they can support businesses. Indeed, as policy makers well know, there are fewer better ways to stimulate an economy than to direct money to low earners. On the other hand, giveaways to higher earners (Hello Bush tax cuts), tend to get pocketed rather than spent.

The empirical record provides very little evidence that minimum wage laws increase unemployment, even if logic necessitates that they do at extremes.

2. (Related) Wages should be set by supply and demand.

The majority of minimum wage jobs are low skill, supply is enormous and prices should be low.

The problem created by this argument is a moral one. Yes, we need unskilled labor, and yes the market price for this labor would be low because the workers are so easily replaced. But if the market price is so low that workers cannot afford education to improve their skills, and if they have little free time for self-learning (and seriously, I can now tell you that they don’t!), and if the unskilled job offers no way to improve their human capital through challenging work, then this fair market price has condemned an entire socio-economic group to a working lifetime of low-skill labor. This cannot be right.

Finally, I have heard some people argue that low wages are required to motivate people to improve their lot in life. I think this is entirely backwards. The majority of people are inherently motivated to improve their outlook for their families, but very low incomes can trap them into a life that eliminates options.