Who benefits from minimum wage legislation?

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Standard-min-wage-graph1The primary case against minimum wage legislation is well known, even if many choose to ignore it:  raising wages for unskilled workers discourages employers from hiring and therefore tends to destroy jobs.

But here’s an interesting observation from the folks at AEI.  According to their calculations, if the minimum wage goes up to $10.10 per hour, the federal government actually takes more from that $2.85/hour raise than the minimum wage worker herself gets!

So let’s say you want government to adopt policies that help people climb out of poverty (as most of us do).  And let’s say that, for some reason, you just don’t believe that employers will hire fewer people if the cost of hiring people goes up.  Wouldn’t it be a lot better for governments to reduce the amount they skim off the top for programs that are ineffective (or worse) and help the poor by letting them keep more of what they earn?

Liberty Quotation of the Day: Milton Friedman on Minimum Wage Laws

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Milton Friedman“Minimum wage laws are about as clear a case as one can find of a measure the effects of which are precisely the opposite of those intended by the men of good will who support it.  Many proponents of minimum wage laws quite properly deplore extremely low rates; they regard them as a sign of poverty; and they hope, by outlawing wage rates below some specified level, to reduce poverty.  In fact, insofar as minimum wage laws have any effect at all, their effect is clearly to increase poverty.  The state can legislate a minimum wage rate.  It can hardly require employers to hire at that minimum all who were formerly employed at wages below the minimum.  It is clearly not in the interest of employers to do so.  The effect of the minimum wage is therefore to make unemployment higher than it otherwise would be.”

Milton Friedman, Capitalism and Freedom [1962]