Who Needs Jobs Anyway?

If the price of something rises, do people want to buy more, the same, or less of that item?

If the price of something decreases, do people want to buy more, the same, or less of that item?

From daily experience, the answers are clear: at a higher price, people will buy less; at a lower price, people will buy more.

This Law of Supply and Demand is the foundation of economics.

Unfortunately, when it comes to public policy politicians often ignore this basic concept, no more so than in minimum wage laws.

What minimum wage laws do is raise the price of labor (wages) above its market price. When that happens, it is clear that employers will buy less labor (employ fewer workers). If you think that answer is wrong, go back to the questions I asked above and decide why people would buy more of something that has a higher price.

Unfortunately, the impact of minimum wage laws on raising unemployment is not a theoretical problem. A recent case in point is the experience of Samoa, which as a U.S. territory was on the receiving end of Congress' ongoing payoff to unions. Congress raised Samoa's minimum wage, and in response employers such as Sunkist laid off workers and move production to other locations.

And now that Samoa has skyrocketing unemployment, Congress wants to spend $18 million to ameliorate the unemployment problem it created with the minimum wage law.

Not only is this a further example that government intervention in the economy usually begets further interventions to address the adverse consequences of a previous intervention, but it shows the terrible real life consequences of ignoring basic economics. And it shows the disastrous impact of minimum wage laws, which act to increase unemployment.