CNN laments that the current federal minimum wage of $7.25 has not increased since 2009. The article concludes by telling us that raising the minimum wage will increase employment, even though this claim defies a basic economic principle. Unlike politicians and CNN, employers understand that supply and demand applies to labor as much as any other product or service. Indeed, one restaurateur said, “For me, minimum wage is what you can hire an employee for. $7.25 hasn’t been relevant for years.”
The article notes that only 141,000 workers earn the minimum wage, a number that is down from 392,000 in 2019. However, the article does not tell us why this dramatic decline has occurred. Is it because states and cities have enacted a higher minimum wage? Is it because employers are voluntarily paying more? Or, is it because many of those jobs were eliminated because of state and local minimum wage increases? No answer is provided.
The law of supply and demand tells us that when the demand exceeds the supply, prices will increase. When the demand for labor—employees—exceeds the supply of workers, then prices—wages—rise. Many employers are acting accordingly and increasing the price they pay for labor. And they don’t need the government to prod them to do so. Conversely, when the supply exceeds the demand, prices fall.
The vast majority of those earning the minimum wage work in food preparation or food service. These are low skill jobs, and in many instances, the supply of workers capable of performing low skill jobs exeeds the demand. Again, employers are acting accordingly and paying those workers a lower wage.
Today, the conventional approach to nearly every economic problem is coercion. It rents are too high, use coercion to prevent landlords from increasing the price of rental housing. If wages are too low, use coercion to force employers to increase the price they pay for labor. While coercive measures may provide temporary benefits for some, they are ultimately harmful to everyone, including those that they are intended to help.