How Does the Minimum Wage Work?

• Prager University video describing and answering question on minimum wage: Many US states are talking about raising the minimum wage to $15 an hour. So are some politicians in Congress. How does the minimum wage work? Would raising it help workers, or hurt them?
• There are negative consequences when government starts setting pay rates.
• Minimum wage or entry level jobs are mostly for high school, college or those people seeking part employment.
• These are first rung on the employment ladder.
• These jobs often do not teach what you don’t learn in school.
• If the cost for employees goes up because the government increases the minimum wage for entry level jobs, what do you think will happen to employees?

1. If minimum wage is increased, then business owners will either increase prices or hire less people to be able to pay few of them more.
2. Most businesses cannot raise prices much. That drives away customers.
3. So, most businesses in service industry find a way to operate with fewer workers or reduce hours for current employees.
4. Some employers may turn to self-service to eliminate the need for as many employees.
5. Current proposals to raise minimum wage could cost as many as thousands of lost jobs.

Further Reading:

Chapter 18 ‘Minimum Wage Laws’ in Economics in one Lesson by Henry Hazlitt

1. A video discussing Chapter 18 of Economics in One Lesson by economist George Reisman.

Chapter XXX. ‘Interference with the Structure of Prices. 3. Minimum Wage Rates” 

and

Chapter XXI. ‘Work and Wages’ in Human Action by Ludwig Von Mises.