Below, I recapitulate various arguments pro-minimum wage and either refute them or ask a question that may be hard for the proponent to answer.
1. The minimum wage will help the poorest wage earners to earn a living.
All other factors held constant, a worker's remuneration is determined by demand for his or her labor service (including its level of productivity) and supply of the type of labor service he or she provides. Additionally, demand for a specific type of labor depends on the amount of capital available to be invested in that particular economic sector (production = labor + capital + land [resources]). If a worker decides that he or she will not work for less than an amount greater than the market determines for labor in a particular sector, that minimum-wage laborer will tend to be unemployed.
And if the price of an entire market segment's product increases, demand will decrease. This means that the marginally profitable producers will no longer be able to make profits and will no longer be viable on the market. Hence, the jobs of workers at these marginal producers will disappear. This is a short-run effect.
There may be some producers that continue to produce at reduced profitability. However, as capital wears out, new investment will be competing with other investments for ROI. If enactment of the minimum wage has made the sector in question less profitable, and the ROI less attractive, then investment may not be available (and all other factors held constant, definitely won't be available) for replacing worn-out physical capital, and the producers will become non-viable over time and minimum wage jobs will disappear gradually (long-run effect).
Finally, if the cost of implementation of automation doesn't prevent a competitive ROI, minimum wage jobs may disappear, even though production continues.
Bottom line: not only will minimum wage not help anyone to earn a living, it will actually reduce employment.
2. Minimum wage legislation will help the poorest wage earners and although it may result in higher prices, will not result in less employment if demand in the market is inelastic.
But, if demand is inelastic, why have producers not already raised prices?
3. Raising the minimum wage may reduce turnover in labor costs, and therefore result in small or no increase in prices of the product.
If offering more wages could reduce costs on the whole, why would producers not already have done so?
4. Minimum wage workers are such a small proportion of a producer's costs that the increase is too small to make any difference.
There is no such thing as "too small to make any difference." It's often observed that smaller producers with smaller profit margins will feel the effects in the short term and minimum wage hikes will equal "get big or get out."
Can big business survive minimum wage hikes more easily than small business? Can their economies of scale provide a profit margin that enables them to stay afloat in spite of the minimum wage? Perhaps, but they're already charging as little as they possibly can to avoid losing market share to competitors. And if they could've charged more, they already would've done so. So there shouldn't be a lot of room to maneuver as far as prices go.
And when investment becomes necessary to replace capital used in conducting business, profitability (ROI) will be a factor in determining whether or not capital maintenance costs can be covered. Depending on what other economic factors are at work, consumers may change their demand schedules, but the bottom line is that the minimum wage causes the economy to shrink and some marginal producers, not necessarily only small ones and not necessarily only ones directly affected by the minimum wage, must go out of business.
5. Empirical studies have shown that minimum wage legislation either doesn't cause or causes only insignificant unemployment.
And there are empirical studies that suggest the opposite. My problem is with "empirical studies" per se.
Constructing a general law on the basis of specific data is a logical error. Even from the point of view of creating a testable hypothesis in the "social sciences," I fail to see the usefulness of "empirical studies," as there is no way to scientifically test unique historical data.
6. Think of it this way: You’re running a McDonald’s selling 1,000 hamburgers a day. You make, say, 75 cents on each Big Mac costing $3.99. Will you raise its price by a nickel to $4.04 in order to make up for an increase in the minimum wage? That would be silly, because $4.04 is not an attractive number, and you’d lose too many sales as a consequence. Rather, you’d be satisfied with a lower profit margin on a Big Mac of 70 cents. But you notice that the Big Mac Meal is selling for $5.69; that gives you the opportunity to raise its price to the next attractive number of $5.75 in order to make up for the increased cost of labor. Will the demand for Big Mac Meals decline? It is doubtful that customers will even notice that tiny increase in price.
Customers may or may not notice the price increase, but not noticing a price increase doesn't prevent their money from not being able to buy as much as before the minimum wage hike. Bottom line: fewer Big Macs will be purchased therefore fewer will be produced and sold = unemployment. What if customers change their demand schedules and are willing to re-allocate money from other expense categories to Big Macs? According to Paul Krugman and other economists, this shouldn't be possible, because if they'd been willing to pay more, they already would've been charged more. But let's suppose that everyone's demand schedule changed abruptly and magically and everyone was now willing to pay a nickel more. The money that is re-allocated to Big Macs has to come out of some other expenditure category, meaning that some other economic sector will experience less business and therefore require less labor. Unemployment rears its head again in whack-a-mole fashion.
What the minimum wage does is make the entire economy less efficient, i.e., more input to produce the same output. Another word for that is impoverishment.
7. Decently paid workers tend to do a better job.
"Decently-paid" and "better" are subjective preferences and so are inarguable. However, it should be noted that the relevant opinion with regards to "decently-paid" is the opinion of the worker who accepts or rejects a job. Of course, workers would always like to be paid more for their labor, just as employers would always like to pay less. The actual price of labor however, is determined by the market, not by the worker or the employer. If a worker accepts a job at a certain rate of pay, that constitutes objective evidence (a demonstrated preference) as to the worker's evaluation of pay and other working conditions. As to what constitutes adequate job performance, the only relevant opinion is that of the employer who continues to employ a worker, which action constitutes objective evidence (a demonstrated preference) of his evaluation of the worker's performance.
8. Those against raising the minimum wage often argue that it will hurt young people the most and that they “need the experience” of working at the minimum wage. But notice that the youth unemployment rate in Germany is 7.8 percent, and in Switzerland, it is 8.5 percent. In contrast, youth unemployment is 15.5 percent in the U.S., even though the U.S.’s minimum wage (using Purchasing Power Parities exchange rates) is below that of these Germany’s and Switzerland’s $10 and $9.20 an hour respectively. In other words, both have higher minimum wages, but much lower youth unemployment rates. Their overall unemployment rate is also lower: 4.5 percent and 3.4 percent, respectively. The minimum wage makes no difference on unemployment.
The minimum wage is not the only or even overriding factor that affects the economics of employment. Both Germany and Switzerland, for example, are experiencing a labor shortage. Under such circumstances, one would expect unemployment to be less and the cost of labor to be higher, which would mean that a higher minimum wage might cause little or no unemployment (if a minimum wage is set low relative to the market wage, it has no economic effect). The relevant question is what would Swiss and German youth unemployment look like without a minimum wage? Unless the minimum wage is lower than the value of labor, it's probably causing unemployment.
9. Paying someone less than a living wage is immoral, and businesses that can't survive without doing so shouldn't be in business.
I don't know what moral principle is involved in the paying of wages, but forcing a particular version of morality on the citizenry should not be a function of government.
Furthermore, the proponent of a minimum wage law wants to use the power of the state to prevent consensual exchanges (of labor for money), which is unjust.
"The Minimum Wage"
To make a horse drink
It is foolish to try;
It’s fully as hard
To make customers buy:
It is foolish to try;
It’s fully as hard
To make customers buy:
So, when prices are raised
By law or decree,
That sales will fall off
Is as sure as can be;
By law or decree,
That sales will fall off
Is as sure as can be;
And if minimum wages
By commission are set
Above what the worker
Would naturally get,
By commission are set
Above what the worker
Would naturally get,
Those worth the money
Alone will be hired,
While the lowest-grade labor
Will surely be fired,
Alone will be hired,
While the lowest-grade labor
Will surely be fired,
And the jobless will sit
And wonder all day
Just what they have gained
From the high legal pay.
And wonder all day
Just what they have gained
From the high legal pay.
~Wilford King
