Should we have a minimum wage in the United States?
By law, employers are not allowed to pay workers less than $5.15 per hour as of September 1, 1997.
Most people who support minimum wage laws feel they are necessary to ensure that unskilled workers have enough income to provide for themselves and their families.

This is a reasonable societal goal.

However, most economists argue that minimum wage laws are a lousy way to achieve that goal.

We can use supply and demand analysis to explain why.


Minimum wage laws are applicable in the market for unskilled workers.

(Highly skilled workers, such as doctors and lawyers, do not work for minimum wage, do they?)

The forces of supply & demand exist in the market for unskilled workers.

The price of unskilled workers is the hourly wage which they are paid.

At the equilibrium wage, the number of unskilled workers desiring a job equals the number of jobs offered by employers

The concern in this market is that this equilibrium wage does not provide sufficient income for these workers.

Minimum wage laws attempt to increase the income of unskilled workers by requiring employers to pay these workers a higher wage than they would in the absence of the law.


What does supply & demand analysis suggest will be the outcome of this policy?


A minimum wage is a type of price control referred to as a price floor.

The law does not allow the price to drop beneath the floor.

The minimum wage is necessarily above the equilibrium wage. (If it were not, there would be no need for the minimum wage law.)

At prices above equilibrium, however, the quantity of unskilled labor supplied (i.e., the number of people willing to work at that wage) exceeds the quantity of unskilled labor demanded (i.e., the number of unskilled jobs offered by employers).

Thus, at prices above equilibrium, there is a surplus of unskilled labor. Some of the workers are unemployed (i.e., not working) or underemployed (i.e., not working as much as they would like).


Has the minimum wage accomplished our objective of providing unskilled workers with more income?

The answer is "yes" and "no."

The unskilled workers who have jobs are better off because they are earning a higher wage.

Yet, some of the workers who would have been employed in the absence of the minimum wage law are unemployed with the minimum wage laws. Have we helped these unskilled workers by instituting a policy which provides incentives for employers to reduce the number of unskilled jobs?


Most economists oppose minimum wage laws. They oppose them because they are inefficient at achieving the stated objective.

If you support the idea of providing unskilled workers with more income, there are alternatives to the minimum wage which probably are more efficient.


ALTERNATIVES TO THE MINIMUM WAGE


RELATED LINKS

Minimum Wage information - from the U.S. Department of Labor

Questions & Answers about the Minimum Wage - from the U.S. Department of Labor

Democratic Hot Topics: Minimum Wage

Minimum Wage Over the Years - a line graph illustrating increases in the minimum wage from 1938 to the present.

The Ugly Truth About the Minimum Wage Law - The vast majority of people adversely affected by the increase of the minimum wage are either young, illiterate, or the very poor. By Jim Cox, Associate Professor of Economics and Political Science at the Gwinnett Campus of DeKalb College. September 28, 1997.

The Minimum Wage - a critique of the traditional economists' arguments. By Andrew Mude, a student at Gettysburg College.

Proposition 210 - the California state minimum wage - Official Title and Summary prepared by the Attorney General - 1996.

The Case Against the Minimum Wage Floor - By Dipak Patel, New York University, January 1996.


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