Paul Heyne

Peter Boettke
David Prychitko
The Economic Way Of Thinking

The traditional (some would say notorious) hostility of most economists to a high legal minimum wage is rooted in their conviction that supply curves slope upward to the right and demand curves slope downward. The number of unskilled persons willing to supply their labor services is not a constant but increases when the wage rate rises, so more people will be competing for the available jobs when the prevailing wage is higher. And at higher wages, employers of unskilled workers will find all sorts of ways to economize on the help they 'need.'

Consider what the owners of a fast-food franchise might do if an increase in the legal minimum wage forced them to pay a 25 percent higher hourly wage to the teenagers they employ. It simply is not true that it takes a fixed number of workers to operate the franchise; there are many margins on which adjustments might be made that would reduce the number of employees. One is hours of operation. At a low wage rate, it might be profitable to open during less busy times of the day, but not at a higher wage rate. Another is quality of service. Quick service can be offered at peak times by having surplus employees during slack times; when wage rates rise, economies can be achieved by reducing that surplus and making customers wait a bit longer during peak periods. Of course, that will raise the effective price to customers and so turn some away, but no sensible business firm wants to serve customers regardless of the cost of doing so. There are all sorts of ways to economize on labor of any particular kind, ways that an outsider won't be able to think of. Some of them will be ways to economize that the owners didn't think of either until a rise in their labor costs gives them a strong incentive to think harder and longer.

It's true but largely irrelevant that the present federal legal minimum wage won't provide a weekly income sufficient to support a family at the level to which most Americans are accustomed. For one thing, many wage earners don't have families to support or are not the principal source of support for the families to whose income they contribute. Nearly one-half of those employed at the minimum wage are members of families with incomes above the U.S. average. More crucially, if $200 a week isn't an adequate income, nothing per week is even less adequate. A large increase in the legal minimum wage would produce more income for some, but it would mean less income for a substantial number who could not obtain employment at any significantly higher wage.

It's important to look at the actual numbers when talking about the probable effects of an increase in the legal minimum wage and also at who is exempted. If the minimum is raised to $5.75 an hour at a time when fast-food franchises are offering $6.00 to starting employees, and if exemptions are written into the law for agricultural workers, employees who receive income from lips, and trainees, the increase would probably have few observable effects. Battles over the minimum wage do sometimes seem to be mostly opportunities for people with different political views to call each other insulting names.