In economics, we know that there is a relationship between prices and supply-and-demand. When prices go up, demand goes down. When prices go down, demand goes up.
The price of labor is no different. If the price of labor goes up, demand for labor goes down. What that means is simple: if jobs get more expensive, then there will be fewer jobs.
People don’t see this because they think that business requires human capital to operate. That used to be true, but now it is not. Now, jobs can be automated. Not all businesses can afford automation, but it is getting cheaper all the time. And of course, small business owners can do what they have always done which is that the owners themselves will work more hours to make up for labor that is too expensive. If that is not possible, then the business will close its doors.
In all of these cases, the result of increasing the price of jobs means fewer jobs.
Here is an editorial from the liberal New York Times from 1987. The editors obviously understand the issues, and they are not hard hearted Captains of Industry looking for slave labor.
An increase in the minimum wage to, say, $4.35 would restore the purchasing power of bottom-tier wages. It would also permit a minimum-wage breadwinner to earn almost enough to keep a family of three above the official poverty line. There are catches, however. It would increase employers’ incentives to evade the law, expanding the underground economy. More important, it would increase unemployment: Raise the legal minimum price of labor above the productivity of the least skilled workers and fewer will be hired.
If a higher minimum means fewer jobs, why does it remain on the agenda of some liberals? A higher minimum would undoubtedly raise the living standard of the majority of low-wage workers who could keep their jobs. That gain, it is argued, would justify the sacrifice of the minority who became unemployable. The argument isn’t convincing. Those at greatest risk from a higher minimum would be young, poor workers, who already face formidable barriers to getting and keeping jobs. Indeed, President Reagan has proposed a lower minimum wage just to improve their chances of finding work.
Milton Friedman made a great point about this. He said that the minimum wage makes it illegal for laborers whose skills are not worth the current minimum wage to work. Do you understand that? If my labor is only worth $5.00 an hour, a company can not bring me on at that wage even if it wanted to. Companies are forced as of this writing to hire workers who are worth at least $7.25 an hour. That means that low-skilled workers have a harder getting a job, which in turn means they have are not getting the experience and on the job training that helps people get better jobs.
College students PAY!!! to be trained, but low-skilled workers who can’t afford college get no training. The black economist Dr. Walter Williams points out that the minimum wage is a barrier to entry for black workers. Listen for yourself:
And now, let me turn my attention to the robot workers. There is no robot minimum wage. A robot can work for any wage. So, if a worker has to be paid at least $7.25 an hour, but a robot can work for $3.00 an hour (costs $3.00 an hour), then the robot gets the job. It is ILLEGAL for the worker to compete with the robot.
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