Monday, December 31, 2012

Prescription for Higher Unemployment in 10 States

The CNN headline reads: Nearly 1 million minimum-wage workers in 10 states will get a pay boost come New Year's Day. This means nothing other than CNN doesn't understand supply and demand economics. Prices, including wages, are set where supply equals demand. Price controls, which is what minimum wages are, only result in distortions to the market. Specifically, when prices are legislated by government above the market price, which is what minimum wage laws do, supply of product, in this case labor, is not fully employed. More technically, if the minimum wage is increased above the marginal revenue product, it becomes unprofitable for businesses to hire the least productive workers and unemployment increases.

Rhode Island enacted a law in June raising its minimum wage 35 cents to $7.75 an hour.

According to CNN, in nine other states -- Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont and Washington -- the minimum wage will jump between 10 and 15 cents an hour.

The new hourly rates will range between $7.35 in Missouri and $9.19 in Washington state, which has the highest minimum wage in the nation.

The federal minimum wage is set at $7.25 an hour.

In 2013, 19 states and the District of Columbia will have rates above the federal level.

Minimum wage laws create the most unemployment among youth, who tend to have the least productive labor skills.


  1. The reason we have these rotten laws is whenever the MSM cover this issue, they never explain it properly. People are left with the impression that someone on the lower end of the wage scale will merely get a wage hike with no negative consequences. In reality, all minimum wage laws are doing is preventing employers from hiring potential employees who lack competitive job skills and job experience such as younger workers or who otherwise have issues such as a criminal background that employers would naturally worry about. If we got rid of all the minimum wages laws millions and millions of difficult to employ workers could join the labor force as it would provide employers an incentive to train people and take risks. For difficult to employ workers, they would gain valuable skills and job experience that for many could form the basis of a career track that in the long run would push them way beyond whatever the minimum wage would amount to even in the most leftwing scenario you could imagine.

    1. Wouldn't matter, many even when even confronted with real economics would still "believe" in the magic of government being able to create it's own economics.