Most policy makers who support minimum wage feel that it’s a way of ensuring that unskilled workers have adequate incomes to provide for themselves and their families. Of course this is reasonable. However, economists believe that minimum wage laws are dreadful ways of achieving such a goal. The laws of demand and supply can be used to explain their argument.
The forces of demand and supply are applicable in the job market for unskilled workers. The price of the workers is the hourly wage that they get. At equilibrium, the number of unskilled workers looking for job opportunities equals the number of jobs that are available in their respective industries. However, the only problem is the fact that the equilibrium wage doesn’t provide satisfactory income for these workers. Minimum wage laws or policies are aimed at increasing the income of these unskilled workers by calling for employees to pay these workers higher wages than they would if the law was non-existent.
Minimum wage can be said to fall under a type of price control called price floor. The minimum wage laws don’t allow the price to drop beneath given point or the floor. So the minimum wage is above the equilibrium wage. However, at prices above the equilibrium wage, the quantity of available labor (unskilled workers) exceeds the demand (number of unskilled job vacancies that the employers are offering). Accordingly, at prices that are above the equilibrium, unskilled labor is in surplus.
Whether the minimum wage has fulfilled the objective of providing unskilled labor with satisfactory income or not is debatable. The unskilled workers with jobs are considerably better off because they are earning higher wages. However, their unemployed counterparts who would have been employed if the minimum wage was non-existent remain in the unemployed state with these laws. So are the laws helping these unskilled workers by creating polices that require employers to reduce the number of unskilled workers in the industries?
This is the main reason why many economists are opposing the minimum wage laws—because the laws are far from reaching their intended objectives. Instead of implementing the idea of increasing the income of unskilled workers, therefore, policy makers can look for alternatives to the minimum wage because they are there.
Great economists such as Christian Broda have proposed alternatives such provision of education and training, more income, and basic items (such as housing, food, and clothing). Christian Broda is the current managing director and lead economist at the Duquesne capital management. He has tenured as professor at the prestigious university of Chicago and Booth school of business. Christian Broda has also served as the head of International Research at the Barclays/Lehman Capital between 2008 and 2010.