It all depends on one's initial premise. It would do us some good to make our initial premises explicit and check them against reality. One initial premise is that an employer needs a certain number of workers to accomplish a given task. That being the case, increasing the minimum wage simply means that all low-skilled workers will enjoy a higher salary and employers will have lower profits and/or customers will pay higher prices. With this vision of how the world operates, the logic of increasing the minimum wage as a means of helping low-skilled workers is impeccable.

Another initial premise is that there is no fixed number of workers necessary to accomplish a given task. Employers might be able to substitute capital for labor such as using dishwashing machines instead of dishwashers, automatic elevators instead of elevator operators, self-service gasoline stations rather than full-service gasoline stations, online reservations rather than reservation clerks or relocating their operation overseas. People who share this initial premise can still have concern for the welfare of low-skilled workers but argue that increasing minimum wages will cause unemployment for some of them and deny job opportunities for others. Given their initial premise, the logic of their argument is also impeccable.

Thus, the question to decide is which initial premise best describes how the world operates. Is it the one that says there's a fixed number of workers necessary to perform a given task, or the one that says employers have flexibility in the mix of workers and capital they use and where in the world they can choose to manufacture? I think the latter description more properly describes how the world operates.

Place yourself in the position of an employer and ask: If a worker costs me, say, $7 in wages, plus mandated fringes such as Social Security, unemployment compensation, sick and vacation leave, making the true hourly cost of hiring a worker $9 an hour, does it pay me to hire a worker who's so unfortunate to have skills that enable him to produce only $5 or $6 worth of value per hour? Most employers would conclude that doing so would be a losing economic proposition.

There are a couple other villains in the piece that force employers to respond to increases in wages that exceed a worker's productivity. If he did hire such workers, he would earn lower profits. Soon, investors would abandon him and put their money where returns are higher.

There's another villain -- the customer. If the employer retained workers whose wages exceeded their productivity, to cover his costs he would have to charge you and me higher product or service prices. I don't know about you, but I prefer lower prices to higher prices, and I'd switch my patronage to those firms who adjusted to the higher labor cost.

Congress can easily mandate higher wages, but they cannot mandate higher worker productivity or that employers hire a particular worker in the first place. Those of us who truly care about the welfare of low-skilled workers should focus our energies on helping them to become more productive, and a good start would be to do something about the rotten education that many receive.

Here is another explanation of the effect of minimum wage laws from The Cato Review of Business & Government (Sense and Nonsense on the Minimum Wage):

Minimum wage laws may very well be the most anti-poor laws envisioned by modern government policymakers. If a minimum wage is set by government at $5 an hour, but a worker's skills are valued by an employer at $3 an hour, the difference between the two is effectively an hourly bonus that many "mom and pop" shops simply can't afford. Sadly, for low-skilled workers it is not easy to find jobs that can afford mandated (higher than market) wages. In order for a job to be created, there needs to be something done that an employer is willing to pay to have done. If the value the employer has placed on that work falls below what the government says it is worth (the minimum wage), the employer may simply not hire anybody.

A job that would otherwise have been created is lost. Still, many people believe that minimum wage laws are beneficial. Most of these people will not lose their employment when wages are raised because they make more than the government-mandated minimum. But everything has a cost, and in the arena of minimum wage, that cost falls disproportionately on two groups: the poor and the young.

In the case of the poor, many of whom are minorities, they suffer because of the inverse relationship between price and quantity demanded. As the price of something rises, people tend to demand less of that thing. Similarly, when the price of the least-skilled workers of society increases (their wages), employers demand fewer of them.

The other group, the young, forms the overwhelming majority of minimum wage earners. They tend to be first-time workers who live with their parents and who work mainly to pocket extra spending money for school and summer fun, and to develop a work ethic. The minimum wage often "prices them out of the market" through the process described above. In fact, U.S. Labor Department statistics show that the last minimum wage increase in 1996 threw about 20,000 youngsters out of work in Detroit alone.

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