The Unintended Consequences of Minimum Wages

“A minimum-wage law is, in reality, a law that makes it illegal for an employer to hire a person with limited skills.”

  • Milton Friedman

“The real tragedy of minimum wage laws is that they are supported by well-meaning groups who want to reduce poverty. But the people who are hurt most by higher minimums are the most poverty stricken.”

  • Milton Friedman

“Unfortunately, the real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum wage, because they lose their jobs or fail to find jobs when they enter the labor force. Making it illegal to pay less than a given amount does not make a worker’s productivity worth that amount—and, if it is not, that worker is unlikely to be employed.”

  • Thomas Sowell

“Unskilled and inexperienced workers are the ones most often deprived of employment opportunities by increases in the minimum wage.”

  • Ron Paul

“Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result.”

  • Murray Rothbard

Minimum wages reduce low-skilled employment by making it more expensive, therefor the experience of the individual becomes a significant variable. Those mostly impacted are new, young and poor employment seeking individuals because of their lack of experience. The cost is above the value of their labor, therefore they are undesirable; from a labor markets perspective.This enforcement, which is rooted in what is said to be good intentions has the unintended consequence of pricing other groups out of the labor market. That set price becomes a barrier to those beneath it, by now prioritizing more experienced people because this is a much better return for $. A business must be rational for the purpose of continuity. The experienced and more educated/qualified people are more favorable as a result. This creates an unequitable playing field for all to compete for labor, since some have been priced out; enhanced barrier to entry, and therefore harder to compete in labor market, leveraging true input value to the enterprise. The current environment with minimum wages puts some groups at an advantage while others at a disadvantage. That is not a fair playing field, and yet that is the intent of a fair ecosystem. Poor communities such as black ones are proportionally put at a disadvantage.

Removing that barrier levels the playing field, where people can pay what they can pay and provide labor experience at fair value to those willing, whom otherwise would have no opportunity. It is hard to dispute the need for removal of such interventions when you see that this hurts those we supposedly desire most to uplift economically. Well let them use their cheaper value to get opportunities and experience, so they can eventually climb the economic ladder. Without that experience and that opportunity, it becomes much more difficult, and unattainable to start that economic journey. They can only gain from this, at least in my cost analysis of intent versus outcome. Removing the barrier would help price out lazy expensive labor, but that’s also good for overall ecosystem health.

We humans and every social structure operate in an economic ecosystem where everything has a cost, since we must always allocate some form of resource to obtain desired results. A good intention does not imply it is beneficial when compared to the costs/trade-offs of that good intention. Cannot really get any decent experience now without having a form of education which the government heavily directs that narrative. Costly and low quality is the major 2 characteristics of the western worlds output of students and labor force recently. The resulted dynamics of minimum wage created this barrier preventing one effective opportunistic means of gaining life and work experience. This funnels people to needing to obtain higher levels of an outdated education, followed by landing minimum wage jobs at 20+ years old because they don't have any labor market value other than pieces of paper. We can all agree that experience matters, and therefor, so does the lack of it also matter. This intervention comes from a place of good intentions initially; or at least I like to believe so. To this day, nearly a century later of continuous work on these minimum wage enforcements has continued to maintain a positive perspective by the people. We look through the eyes of the intent, but by being focused only on that perceptive, we forget to look at the outcome of such interventions.

One needs to work to gain experience and grow to seek higher value for their labor capabilities. This should produce eventual success into gaining entry into a vibrant economic ecosystem where a lot of money is flowing. That success comes by adding value, and with time an exponentially growing individual with value; as a business should do with their customers or as an employee with their employer. The cost of an individual's experience and capabilities or lack of it alone should be the condition within a given ecosystem to weigh (type of business/industry/position).

Another unintended consequence is one looking at the effect on the cost of living. When minimum wage increases, labor expense becomes more expensive year over year, therefore, in order for the businesses in the ecosystem to not end up being reduced to 0% margins, they must increase costs proportionally. Rational outcome. Consumers within those ecosystems as a result end up paying higher prices because of inflation through minimum wage laws. Remember that big economic ecosystems have a lot of small and medium businesses which employ many. This also drives up employment costs for more experienced people since everyone hopes to at least an increase in income proportionally to inflation, since the minimum price flooring is moving higher. With these effects, businesses will employ less people and/or burden individuals with heavier work load to reduce costs while trying to maintain same output, which can impact quality as a result also. Or they can simply increase costs for the consumers to offset the annual increases in their costs. We cannot always blame businesses for doing what they must to survive. There are people who depend on the viability and sustainability of that business to survive in an economic ecosystem.

Yes you could make the argument "well what about people who will get played and exploited?". Alright then, lets analyze that fear through. A simple solution is flipping the responsibility off the government and putting it on the ignorant individuals whom operate in an economic framework - aka the citizens. Whether they like it or not, it is fact that we operate in an economic framework. If the people had the opportunity to be properly educated, our youth entering our economic ecosystem; even though it is a challenging one, would yield continuity moving forward in a more balanced, equitable and fair manner. That is far more balanced and optimal desire for all. Everyone's purpose in life is accumulating memories, wealth, strength, status, food, clothes, cars, tools, experience and knowledge, family, a place to call home, friends.... you name it. They are finite, therefore we seek to maximize the accumulation of these resources to ensure we can enjoy the things we want to, which is a luxury in our day and age. Well that purpose to accumulate and do something in exchange drives us to exchange time, capital or goods to accumulate those things. You need to eat. You need a safe place to eat. You need a means to offer value to some other social entity in exchange for capital to obtain basic needs. Whether as an entrepreneur creating a business needing clients or as an employee (laborer) offering their experience and capabilities to the enterprise. Oh and don't forget it should also be the way the government seeks to add value to its stakeholders which are all the individuals and enterprises of the ecosystem. They should desire a smart and capable ecosystem. Sort of operating like a socially responsible enterprise always seeking to enhance the value of their stakeholders. Alignment. All facing in the same direction (strength) rather than facing each other (chaos).

Would simply empowering the citizens themselves with an actual reflective education where they can navigate the system not be something positive? Teach them to fish and they know how to repeat the positive outcome, gaining a footing on sustainably accumulating a resource; feed them yourself and they will be back for more. Seems relatable as a story of citizens in an economic ecosystem with the Government's economic grasp. In this case, citizens are not being taught to fish.

If we just elevated our understanding as a collective of operating in an economic framework by ensuring the work of our educational system creates that output. Applying the principles of a zone of proximal development, its primary purpose in my opinion is to create alignment with reality of the dynamics of our ecosystem and the role of a human within. From a primal economic framework to a smart collaborative economic framework (capitalism - but true capitalism, not socialistic capitalism which fuels evil enterprises to leverage government rules and officials to gain an advantage).

Now lets flip this analysis of the unintended consequences and look at the outcome it has for the government.

Putting into place a minimum wage has no cost on the government, but does have a cost for many people, as per my analysis above demonstrates, supported by many others like the work of those who's quotes I reference at the beginning.

Even though the intent is good, there is a misplaced understanding of the true economic effects of minimum wages. From the Government’s perspective, this yields increased tax revenues. More income to tax and more sales tax as a result of increased costs. They still produce favorable effects for their pockets. More money is enforced to be given to employees, which then they simply end up being taxed more and spend more from the increase in cost of living. As a result of that enforcement, a form of Zero sum result appears to the pockets of those it’s suppose to benefit. I only see one social entity winning from this, and it's not any common man or business.

They artificially seem to unintendedly induce their own chaos to maintain divisive control as a framework, as though the invisible hand of the government dynamics are designed to be intrusive to that extent. The government’s framework as a whole plays all sides, always offering out favors for votes and money. If that isn't fair play, I don't know what is. But oddly enough, they say they will fight that while allowing the same framework which allows those behaviours to thrive to remain complicit. It’s framework behaves as though political power is the best way to ensure an outcome, but it most usually comes at a cost. As mentioned above, there are clearly observable costs putting others at a disadvantage while creating an undesirable advantage for others with no real cashflow increase since expenditure also grows. These realities do not allow the ecosystem to interact and engage through fair play. We want our framework to produce equitable environments which would be far more sustainable for the collective. The true framework of the game of life within a collective social environment requires each to do their own part for sustainability purposes; which yes also exists within the economic framework. To optimize our framework, government's hold over the economy must be released, giving economic power back to the individuals. There is no true framework that has been set which aligns both collective pursuit and individual pursuit with the fairest rules. Government acts like it doesn't want its citizens to gain economic power, or that it believes if the governing structure is strong, then through perception so are the people of that nation. This couldn’t be more wrong. That is simply perception.

In my reality, gaining economic power appears to be the key factor in establishing freedom. When you go above scarcity, an economic principle within its game, you are free from government chaos and their visible hand. If the intent is to have that opportunity for all to climb at their best ability while all respecting fair equitable dynamics, then why not release control where we can visibly see the undesirable effects. It’s not like the educational system teaches people the reality of an economic ecosystem such as ours. I wonder why? Proper financial and economic education would yield a more optimal economic citizen, strengthening the labor market and its productivity. But this would yield negative consequences for the size of the governments role in maintaining economic power.

When you are at the mercy of the invisible hand of positive human dynamics, look at all the incredible tools and innovative wonders our humanity is capable off. The power of the individual to add value to the ecosystem. When we are at the mercy of government intervention and regulation, we cannot have an ecosystem in equilibrium. This is not to say that it does not have that role, but rather to question where that role is optimal and undesirable. Since everything they do has a cost, it is very easy to see the outcomes of their behaviours which operate on an economic framework of consuming, producing and allocating resources; the flow of capital and resources. Funny enough, it appears hard to audit the government's financial behaviors in real time, so only its outcomes can be observed, making them very weak evolutionary since they cannot adapt quickly to live behavioural and economic dynamics. That weakness translates over into the masses since they are the controller to our economic ecosystem, which appears to be a growing issue as a result. Just look at our reality in 2020.

The outcomes of similar actions such as minimum wage is where we can both behaviourally and economically align an argument for removing minimum wages. This creates a fairer pricing market and removes pressure from new, young and poor people to seek employment to start building experience and climb the economic ladder. With that, in my opinion, it simply creates undesirable chaos, artificially creating a sense of safety net that only a few can benefit from since others have been priced out. I can clearly see the pattern of negative ripples by these unfair conditions in an environment which seeks to have a desirable, fair and equitable playing field. Not the current reality though, a century later. If its broken, clearly it has to be changed, what do we have to lose at this point either way? The issues highlighted are only worsening, so simply hoping it will go away is not enough. There is need for a serious fundamental shift in our understanding of government role in the economy.

This triggers gaps that we can now observe live in 2020 within major cities where employment for low skilled positions are deviated from new, young and poor people, widening the economic gap of those at the bottom. What would be a great advantage over others purely from the lack of experience, becomes their kryptonite with the barrier of minimum wage. This is why it is said by expert economists and public theory scientists that minimum wage has significant unintended consequences. Yes it is a good intent, but a costs analysis brings to light the effects of such desires. This argument has been made for half a century by some incredible minds, yet their voice has never reached mass awareness.

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