Minimum Wage Harm

Intervention by politicians, judges, or others, in order to impose terms more favorable to one side - minimum wage laws or rent control laws, or example - reduces the overlapping set of mutually agreeable terms and, almost invariably, reduces the number of mutually acceptable transactions, as the party disfavored by the intervention makes fewer transactions subsequently.  Countries with generous minimum wage laws, for example, often have higher unemployment rates and longer periods of unemployment than other countries, as employers offer fewer jobs to inexperienced and low-skilled workers, who are typically the least valued and lowest paid - and who are most often priced out of a job by minimum wage laws.

It is not uncommon in European countries with generous minimum wage laws, as well as other worker benefits that employers are mandated to pay for, to have inexperienced younger workers with unemployment rates of 20 percent or more.  Employers are made slightly worse off by having to rearrange their businesses and perhaps pay for more machinery to replace the low-skilled workers whom it is no longer economic to hire.  But those low-skilled, usually younger, workers may be made much worse off by not being able to get jobs as readily, losing both the wages they could earn otherwise and sustaining the perhaps greater loss of not acquiring the work experience that would lead to better jobs and higher pay.


Thomas Sowell, Intellectuals and Society, p.70