A Problem With Minimum Wage Laws

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The former governor of South Carolina, Carroll Campbell, said it:

"The trouble with the left is they don't understand dynamics."

Raising the minimum wage will begin such a dynamic. When they are forced by law to pay more wages to their employees, employers, being the businessmen that they are,whose main concern is maximizing profits, will not sit idly by and watch those profits dwindle away.They will pass the increased cost of doing business along to consumers by raising their prices. The process is called "inflation."

Yes, some people will be taking home more money, but they and everyone else will be paying more for the things they buy. What economists call "real consumable income" will hardly go up at all.

The concept is part of classical Economic Theory:

Biz/ed - Wage-price spiral | Biz/ed

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@JoeBruno,

If it is only the very poor who have their money raised to a legal minimum, then the theoretical rise in price will be tiny, as the rest of the workforce will have had no rise at all.
In practise this will probably mean that the lowest paid will gain more money than lose.

The problem with minimum wage laws is globalisation. If a Chinese or Indian worker is being paid pitifully low wages so that their factories in India and China can produce goods cheaper than those in the USA, then it makes it almost impossible for USA employers to pay their workers more.

The consequence of a minimum wage law will either be that you all end up buying Chinese goods, or your country, in an effort to save American jobs, will have to put up trade barriers with low paying exporters such as China.

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