The Minimum Wage: Good Intentions, Devastating Consequences

Few policies enjoy such broad support while causing such predictable harm as minimum wage laws. The logic seems impeccable: mandate higher wages, and workers earn more. But economics teaches us to look beyond first-order effects to unintended consequences. Those consequences fall hardest on the very people minimum wage laws purport to help.

Price Floors Create Surpluses

Economics 101 teaches that price floors create surpluses. When government mandates that bread costs $10/loaf, bakeries produce more bread than consumers buy at that price. The surplus sits unsold.

Labor is no different. When government mandates $15/hour, employers demand less labor than workers supply at that wage. The surplus is called unemployment. This isn't theory but mathematical certainty, confirmed by countless empirical studies.

The workers who keep jobs at $15/hour benefit. Those priced out of employment—typically the young, unskilled, and minorities who most need entry-level opportunities—pay the price.

Bastiat's Unseen Victims

Frédéric Bastiat taught us to look for the unseen consequences of policy. The minimum wage creates visible winners: workers who keep their jobs at higher wages. Politicians pose for photos with them at bill signings.

But the costs are invisible:

• The teenager never hired, losing the chance to develop work skills
• The ex-convict trying to re-enter society, now unemployable
• The immigrant with limited English, denied opportunity to prove worth
• The small business that never opens, knowing it can't afford mandated wages
• The automation that replaces workers, accelerated by artificial wage floors

These unseen victims never appear in politicians' photo ops. But they're real, numerous, and their lost opportunities compound over lifetimes.

The Austrian Insight: Marginal Productivity

Austrian economics emphasizes that wages reflect marginal productivity—the value a worker adds. When a worker produces $10/hour of value, no employer can profitably pay $15/hour regardless of legal mandates.

The employer has three choices: eat losses and eventually close, replace the worker with technology, or simply not hire. None of these helps the low-skilled worker. The only sustainable way to raise wages is to increase productivity through education, training, and capital investment—not legal mandates.

The Racial Justice Dimension

Minimum wage laws originated partly from racial animus. During the Progressive Era, northern unions supported minimum wages explicitly to price black workers out of jobs. This ugly history is well-documented but conveniently forgotten.

Today's disparate impact is no less real for being unintended. Black youth unemployment spikes with each minimum wage increase. Entry-level opportunities that once provided pathways to prosperity are destroyed by well-meaning legislation.

The Swiss Model: No Minimum, Maximum Prosperity

Switzerland, inspiration for Swiss Economics, has no national minimum wage. Yet Swiss workers earn among the world's highest wages. Why? Not because government mandates it, but because Swiss workers are productive, educated, and working with abundant capital in a business-friendly environment.

This reveals the real path to higher wages: economic freedom, property rights, sound money, minimal regulation, and investment in human capital. These create genuine prosperity rather than the artificial prosperity of legal mandates that destroy opportunity.

The Compassionate Alternative

If we truly care about low-wage workers, the solution is not minimum wages but removing barriers to opportunity:

• Eliminate occupational licensing for entry-level jobs
• Reduce regulations that prevent small business formation
• Improve education through competition and choice
• Stop inflating away the value of wages through monetary expansion
• Allow people to work for whatever wage they find acceptable

Freedom and opportunity beat mandates and restrictions every time. The minimum wage is a perfect example of good intentions paving the road to economic hell.