This past week, Donald Trump publicly supported the idea of raising the federal minimum wage standard to $10 an hour. As is typical of Donald Trump, his current stance on this issue is a far cry from his previous position of stating that current wages are “too high.” Nevertheless, Trump’s standard is less than the minimum wage requirement that would most likely be established under a Clinton presidency; she has supported a $12 an hour minimum wage standard in the past, and some of her colleagues have suggested that she may set an even higher standard if given the opportunity. To put these proposed increases in perspective, the current federal minimum wage is only $7.25. With both major party candidates suggesting an increase of some sort, one major question must be asked: does a minimum wage even work in either theory or practice? The answer to this question will separate real facts from political fantasies.
As John Gray, a contributor at Conservative Review, has pointed out, a minimum wage is simply one of many prices within our American economy. Theoretically, when one raises the price of a good beyond that good’s market value then that good will most likely either not be purchased at all or simply be bought in fewer quantities. Imagine you are at a farmer’s market seeking to purchase oranges; the stand that sells an orange for $15 will not attract as many customers as the stand that sells an orange for its market value price of $2. The market value of any good is determined by innumerable amounts of transactions between providers and consumers. With regards to the minimum wage debate, the good being evaluated is labor, and it is being sold by employees and bought by employers. As is displayed in our orange hypothetical, when the cost of labor increases beyond the market value employers are less likely to purchase it.
The common retort from minimum wage activists against this point is that without a government imposed floor for wages employers will simply pay their laborers a bare minimum. As John Gray explains, employers that have a high demand for labor (thriving businesses) will pay more for workers than those who have a low demand. This analysis of course makes intuitive sense, as a business with a high need for workers will be much more likely to pay laborers their desired amount out of the necessitating circumstances it finds itself in. Just like the oranges, the price of labor in any given circumstance is determined by the converging desires of suppliers (employees) and demanders (employers). Minimum wage laws, however, throw a wrench within this convergence; these laws manipulate the means by which the two aforementioned parties are able to codify their desires within contractual payments, and they lead to more unemployment. The average unemployment rate of EU countries with minimum wage laws is roughly 3.9% higher than that of EU countries without minimum wage laws; these laws especially harm young workers, as EU countries with minimum wage laws have a youth unemployment rate of 27.7%, but EU countries without minimum wage laws have a youth unemployment rate of 19.5%. In the end, raising the minimum wage can only be viewed as a beneficial act within political fantasies; in reality, nobody wins.