By Mark Penner, JMI Intern & University of Alabama Junior in Political Science One Progressive policy that is currently plaguing our nation is increasing minimum wage laws. A net result of increased workers’ salaries is the common sense understanding of minimum wage laws; however, this perception is flawed as a result of unseen negative external factors. Actually, minimum wage laws tend to disadvantage lower skilled workers in favor of higher skilled workers.Suppose market equilibrium price for a particular form of labor, such as construction, is $5.00/hour, then the most efficient distribution of higher and lower skilled workers will be reached as businesses seek to maximize profits. If the government intervenes on behalf of the workers by setting a minimum wage above market equilibrium at $7.00/hour, then lower skilled workers begin to receive a wage near that of higher skilled workers (often members of trade unions.) Therefore the fiscal advantage of hiring the lower skilled workers is lost and thus businesses hire more unionized/higher skilled workers–lower skilled workers become unemployed and production is lost.In effect, such policies serve to redistribute wealth from lower skilled workers and consumers–who pay higher prices for the artificially scarce goods–to a select group of beneficiaries, often unions. Thus it is hardly surprising that the American Federation of Labor- Congress of Industrial Organizers is one of the leading proponents of minimum wage increases.This form of government interference in the economy results in unemployment and the loss of American jobs to other countries. This then leads unionists to lobby for protective tariffs to save American jobs by again artificially increasing the price of goods to American consumers. As a result, a vicious cycle of increasing government regulation and higher prices is created. In the end, it is the most vulnerable workers who are harmed–by the very laws that are meant to protect them—as well as American consumers.If we want to save our economy, we need to understand the effects of our actions. Minimum wage laws stifle economic growth and foster unemployment by inflating the cost of labor. Let the market run its course.
