Most proposals for changing the minimum wage entail either marginally raising or lowering it. Some want it as high as fifteen dollars an hour while other want it as low as seven dollars and twenty five cents an hour. When discussing it, very few challenge the very nature of it's existence. People who want to raise the minimum wage are often portrayed as champions of the poor, while those who wish to lower are said to be helping the rich. If one ignored the political rhetoric and focused objectively on the effects of a minimum wage, they would most likely come to realize that it is neither good for businesses nor workers. As counter-intuitive as this sounds, the minimum wage that would help the poor the most would be zero dollars. Unfortunately, the way to reduce poverty doesn't lie in the minimum wage and any attempt to use it to fight poverty will have very negative results.
It is a common belief that the minimum wage is necessary because workers are exploited by greedy businessmen who only care about themselves and will pay their workers as little as possible. This core assumption of those who support the minimum wage is totally false. To believe this one has to fail to understand how prices are determined. Suppose there are two businessmen, A and B. Each is a greedy sociopath who only cares about themselves and would do whatever it takes to rake in another million dollars. In the absence of the minimum wage, one might expect them to each pay their workers one cent an hour. However, if person A payed their workers one cent an hour person B would pay their workers two cents an hour, and take all of the people who had previously worked for person A. Thus person A would have to pay their workers three cents an hour. The cycle continues until the workers are being payed the amount that they are really worth.
Now one might expect that person A and person B would simply agree to both pay their workers one cent an hour. While this might be true in this simplified example, in the real world their are hundreds of businesses competing for workers. Even if conspiring would be possible with two people, it would surely be impossible with hundreds of people, each of whom generate more profit individually by paying workers the correct amount. Thus, the greed of businessmen will benefit workers. All through the power of the free market.
Now let's consider this situation with a minimum wage. Suppose there are one hundred workers each being payed ten dollars an hour. In the absence of the minimum wage they will all work and be payed the amount that they are worth. However, if the government feels they are being paid too little, and sets the minimum wage at fifteen dollars an hour, they will all be unable to maintain their job. If they are being payed ten dollars then they are worth ten dollars to the employer. The employer will not hire them for fifteen dollars, because they are worth less than fifteen dollars.
If one wanted to give stimulate the wages of the poor, the best way to do it would be to simply give money to people who work and have incomes below a certain point. As peoples incomes would grow, their benefits would decrease. This would increase the wages of the poor, without distorting the free market. Under the minimum wage an employer has to pay for the subsidy to the workers. On the other hand, if the working poor were simply given money, the employer would not bear the cost of the increase in wages. When the employer has to pay the subsidy to the wages of the worker, they are far less likely to hire the workers. After all, people buy less of things that cost more.
If the goal of the minimum wage is to supplement wages of the working poor, their are far better and more efficient ways of doing that. However, the minimum wage simply feels moral. It like many other programs ends up harming the people whom it is intended to help. The minimum wage must be examined rationally for one to get a true understanding of it's effects. It's effects are quite negative. Despite this people still support this because they feel, irrationally that it is right or that it helps the poor. Sadly good intentions make bad policy and harm many people.
