Obama's Minimum Wage Proposal is Economic Lunacy


Why will some economic fallacies never die? The minimum wage is by far the most disproven of the bunch, and yet even Harvard Law School graduates like President Obama still harp on the economic benefits of that miracle that is the minimum wage. It must be a miracle because according to those who support it, it helps the poorest workers in spite of all the economic theory and evidence that conclusively proves otherwise. The last thing the federal government should do if it wants to help the unemployed, poorest income earners, and minorities discriminated against would be to raise the minimum wage.

There is probably no economic issue that has had more studies and more theoretical arguments to show that it does not work as stated by proponents than the minimum wage next to maybe tariffs, which thankfully has finally been accepted by politicians. Why minimum wage does not work is that it superficially changes the market price for labor but does not change its fundamental value, but rather undermines labor. Any economist, can tell you that workers get paid their marginal product of labor (MPL) or the demand for labor, which means their value added to the firm. A McDonald's employee is paid  for the marginal value added to the franchise — nothing more — since anything above that he would cost McDonald's more than he would be contributing.

What actually ends up happening is the tale of two technologies one that is good for the low income worker and one that is bad. Technology, in the free market, is good for the worker, but not when the government forces workers to accept higher than market wages. Technology makes the MPL increase or demand for labor to increase, because now each worker is more productive: more product, more wage. It is a simple equation. This can easily be tested by anecdotal evidence. Just look at what you do on a daily basis, how much of it could you do without technology? Very little. Just now I am using, a computer, an OS, a word processor, servers, the internet, and energy to write this article to write and article that will be accessible by anyone in the world with at least a few of those things. Look at how productive I am being without as little as stepping out of my office. Machines also serve to reduce the cost of living: more things, less work.

How much more productive does technology make us when it comes to producing goods. We have cranes, factories, bulldozers, steel mils, and so on that make each worker incredibly more productive than they would be otherwise so that a company can afford to raise his wages. So what actually happens to low income earners when we enforce minimum wages? Simple: less of them get employed, and the number only increases as companies have time to invest in machines that will eventually replace them. By raising the minimum wage firms that rely on low income wage earners reduce their employment by substituting investment into machines that replace workers rather than make them more productive. Not only that, but the cost of living increases, so when President Obama says we should tie the minimum wage to the cost of living, he clearly does not understand that the two are not only related, but one is very much dependent on the other. 

The most damaging effect of the minimum wage is that it has that the strongest effect is on minorities, single mothers and teens with little education. I can site study after study and upon study that will show how minimum wage hurts the minorities and youths more than any other demographic. If there is anything a reader should come away with from this article with is that the minimum wage hurts, but most particularly minorities and youths. I could probably spend about five articles trying to debunk all the economic myths and fallacies that appear in this speech, but before you start championing the benefits of the minimum wage, please first lend a discerning eye on the minimum wage and realize how extremely negative its effects are on the poor.