A while ago, I commented on the minimum wage put into effect by the Arizona State legislature. It appears that my comment had no effect, as we still have a minimum wage here in AZ, and now they're even talking about instituting a higher one on the national level.
Let's think about the logical implications of a minimum wage.
When a minimum wage is instituted, the cost of labor rises. When costs rise, a business may or may not remain profitable.
If a business is not profitable it will, sooner or later, cease business operations. In this case, the labor employed by the business will be disemployed and the capital (if any remains) will be set free to seek another line of production.
If the business remains profitable, it may continue operations, but there is the question of the ROI. How is its ROI compared to other sectors of the economy? If it's lower, investment in the business may dry up, and the business eventually cease operations.
On the other hand, the business owner may have various options to maintain profitability.
1. Automation. If the cost of labor goes up, the owner may find it feasible to replace (or speed up replacement of) human labor with machines.
2. The owner may try to make his employees work harder or more efficiently with a view to using less labor. (Though why the owner wouldn't have already done that before the imposition of the minimum wage is puzzling.)
3. The business owner may try to pass on the increased cost to the customers.
a. If the customers choose not to bear the addtional cost, the business ceases operations and labor is disemployed.
b. If some customers choose to bear the additional cost, the business may continue operations, but employing fewer factors of production (including labor).
c. If all customers choose to bear the additional cost, everything is ok, right? Wrong. Just because the business owner raised prices, doesn't mean the customer got a raise! The customer still has the same amount of resources (money) ante-minimum wage law enactment. If the customer chooses to maintain pre-enactment level of spending at a business that raised its prices due to the minimum wage law, that expenditure has to come out of another part of the customer's budget, and other economic sectors will be debited whatever is credited to the minimum wage-affected sector.
4. In an attempt to make an end-run around the difficult choices in #3, a business owner may engage in "shrinkflation" to try to lower costs. Instead of raising prices, the size or quality of the product is altered so that it costs less to produce.
But the bottom line is that, after a minimum wage is enacted, the same amount of output is produced with more input; in other words, productivity decreases. This is a move in the direction of impoverishment.
On the bright side, minimum wage labor is currently a very small sector of the labor force in the U.S., and will not likely cause great damage to the larger economy. Plus, as money loses its purchasing power due to inflation, the minimum wage sinks to the natural market level.
The above analysis assumes ceteris paribus---"all other things being equal." Of course, in the real world, all other things are never equal. Such factors as rising inflation or changing demand can mitigate, offset, or mask the cost-raising effects of the minimum wage, but the fact remains that aggregate wealth would have been greater without it.
