Minimum Wage Laws Cause Unemployment

The U.S. Congress first instituted a minimum wage with the Fair Labor Standards Act of 1938 to ensure workers a minimally adequate standard of living. In 2007, the minimum wage according to federal law was $5.15 per hour, and it was scheduled to increase to $7.25 by 2010.

Minimum wage laws are basically price floors paid to workers, which creates a shortage of available jobs, and a surplus of willing workers, or unemployment. As with most state intervention, the needs or wants of a smaller portion of a population are met at a cost to the entire population, even when the goal on the surface is to promote some policy that benefits those who are disproportionally neglected.

If the minimum wage is above the equilibrium level, as it is here, the quantity of labor supplied exceeds the quantity demanded. The result is unemployment. Thus, the minimum wage raises the incomes of those workers who have jobs, but it lowers the incomes of workers who cannot find jobs.

In reality, this type of price floor actually causes the problem that wage mandates are touted to resolve. Funny how that tends to work out so often when the state initiates market mandates that fail consistently in the face of basic economics.

The minimum wage has its greatest impact on the market for teenage labor. The equilibrium wages of teenagers are low because teenagers are among the least skilled and least experienced members of the labor force. In addition, teenagers are often willing to accept a lower wage in exchange for on-the-job training.

Want to end unemployment? Repeal state-mandated minimum wage laws. 


Rent control is another example of a failure to promote fair market prices and an equilibrium supply/demand rate through state mandates. The result is lower costs, but also a lower supply of available rental properties, as well as a generally lower quality of available rental units. What motivation to landlords have to maintain properties when there is a fixed market price?

In free markets, landlords try to keep their buildings clean and safe because desirable apartments command higher prices. By contrast, when rent control creates shortages and waiting lists, landlords lose their incentive to respond to tenants’ concerns. Why should a landlord spend money to maintain and improve the property when people are waiting to get in as it is? In the end, tenants get lower rents, but they also get lower-quality housing.

Policymakers often react to the effects of rent control by imposing additional regulations. For example, there are laws that make racial discrimination in housing illegal and require landlords to provide minimally adequate living conditions. These laws, however, are difficult and costly to enforce. By contrast, when rent control is eliminated and a market for housing is regulated by the forces of competition, such laws are less necessary. In a free market, the price of housing adjusts to eliminate the shortages that give rise to undesirable landlord behavior.

Ah, free markets. It seems that politicians and those unwilling to work for their needs and wants are the only ones truly benefiting from these sort of measures. In the end, these sort of market restrictions are akin to taxation, as they manipulate the market in a negative way, increasing inefficiency and costs while creating little collective benefit.

As I say, taxation is theft, which is a form of violence against another, something that I can not in good conscience defend. Whether it be rent control, import tariffs, wage laws, or other market controls, the society overall suffers the burden and gains no true benefit.

Source: Mankiw, N. G. (2007). Principles of microeconomics. (5th Edition ed.). Mason, OH: South-Western Cengage Learning.