I often find myself frustrated by the lack of economic knowledge by the general public, especially in my peers. It seems obvious that most workers wish to earn more pay for their labor, yet few are opposed to wage laws that appear to promote higher wage rates. But that's only on the surface, we have to only peel back that top layer to discover the reality.
Minimum wage laws intend to increase the wages earned by an individual worker, but completely ignorance effects to the labor class in total. Wage floors work the same as price floors; they set minimum prices for the labor of a worker, just as they do for individual goods and services. For those workers who are employed, these laws do in fact increase their level of earnings. But that is only the micro effect, we must also consider the macro.
By forcing employers to pay higher wage rates to employees, the net effect is that labor costs to employers increase. To maintain profitability, employers are forced to hire fewer workers, and lay greater productivity expectations on the workers. The net effect is that higher labor costs directly result in a lower demand for workers. When there is a surplus of labor, the result is unemployment.
If unemployment is a direct result of minimum wage laws, the minority workers which these laws are intended to assist are actually doing them harm, as those low-wage earners now have to compete with a greater number of unemployed potential workers for fewer opportunities. Hello unintended consequences.
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