As Dr. Milton Friedman once said, “The consequences of minimum wage rates have been almost wholly bad — to increase unemployment and to increase poverty.” He was right.
Let’s look at some numbers.
1938 was the year the Fair Labor Standards Act instituted a federal minimum wage at 25 cents per hour in the U.S. Since then, Congress has raised the minimum wage multiple times, adopting the current rate of $7.25 per hour in 2009.
State governments are permitted to pass legislation to raise the minimum wage even higher within their state, but they are not allowed to set the rate below the federal level.
Unfortunately, this well-intentioned effort has had severe unintended consequences, hurting the unemployed and the very same young and low-skilled workers it is intended to help.
The bottom line is this: The minimum wage raises the cost of labor for businesses, leaving employers with a difficult choice to make when their budgets are already limited — stop hiring new workers, cut hours or benefits for current employees, or lay off existing employees altogether.
This can have a devastating impact on the economy, and it hits those who are unemployed and looking for a job particularly hard.
In 2010 economists Joseph J. Sabia and Richard V. Burkhauser released the results of their research, which found that not only did minimum-wage increases (state and federal) between 2003 and 2007 have no effect on state poverty rates, but additionally only 11 percent of workers who would gain from raising the federal minimum wage from $7.25 to $9.50 per hour lived in poor households.
Numbers do not lie. Politicians may manipulate them for their own benefit so that poll numbers or election results go their way, but numbers remain unchanged. So does history, and the history of minimum wage laws in the United States tells the story of a failed government intervention into the economy.
Minimum wage laws have the unintended consequence of increasing unemployment and reducing opportunities for young and low-skilled job seekers. Increasing the minimum wage just doesn’t add up.