Fifteen is just an arbitrary number politicians picked out of the air while looking for something appealing and alliterative.How do we know? Because if a higher wage increased worker productivity beyond the cost of the increase, employers would be raising wages voluntarily. Why? Because a higher minimum wage doesn’t make workers more productive it simply makes them more expensive. Requiring businesses to pay a higher wage forces employers to jettison their least valuable workers in order to afford the more valuable ones. The sad irony is that the beneficial wage effects of a minimum wage hike are largely felt by better skilled, better experienced, better-educated workers, while the detrimental employment effects are largely felt by less advantaged workers. The common misconception is that minimum wage legislation only affects how much employers pay, but it also affects whom they employ. Minimum wage increases cause the price of labor to go up, and when that happens, people, in this case employers, hire less labor.
The Effect on EmploymentĪs sure as the sun will rise in the east, when the price of any product goes up, people buy less of it. But people acquainted with the dismal science know that no amount of legislation can change the fact that the actual minimum wage is zero, which is what workers receive when the mandated wage rate prices them out of the market. And we are now hip-deep into election season, which means that we should expect this issue to come up repeatedly as we ramp up to 2020. If voters believe that raising the minimum wage helps workers, then politicians have an incentive to agitate in favor of increasing it. This latitude notwithstanding, the American minimum wage debate takes place on the national stage for the most part.
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States are free to set whatever minimum wage they think is appropriate. Among the states, California’s $12 an hour minimum is currently the highest (the minimum wage in the District of Columbia is $13.25). Eighteen states impose minimum wages higher than the federal minimum of $7.25 an hour.