Answering The Objections Of The Minimum Wage Supporters

1. We have to help the poor. But how can you help a poor per person if you price them out of the market? If the minimum wage is $10 per hour and a worker's marginal revenue product (MRP) is only $9 per hour, no one will want to hire that worker. No business will spend $10 to get $9.

2.  But maybe they are not getting paid their MRP. This only happens in the case of monopsony, where there is only one firm that employs a certain kind of worker (in a monopsony, a minimum wage, if not set too high, would actually increase the number of workers hired). But the minimum wage usually affects retail workers and fast food workers, industries that are extremely competitive. There are many firms hiring those kinds of workers. Even if workers got paid less than their MRP, it means that those firms would be making above normal profit. This would induce entry into the industry and increase demand for labor, driving up wages.

3. No or very few workers lose their jobs from the minimum wage. Some studies suggest this. But if it were true, then it means that the demand for unskilled labor is extremely insensitive to the wage rate. That means that we could raise it quite high, perhaps to $25 per hour. It would still not reduce employment that much and the advocates say that these lower income people spend a greater share of their income than those with high incomes. So it would create jobs. But we don't see anyone advocating this high of a wage.

Advocates never state what they think is the optimum wage, the one that would maximize social welfare. I assume that would be where supply and demand (MRP) would cross in a monopsony graph. Of course, each monopsony might have their MRP, marginal factor cost and supply curves in different places. That means that each firm would have to have a different wage applied to them.

4. It helps businesses since it reduces labor turnover. This cuts down on training and hiring costs. But if such a thing were so good for businesses, they would have already done it. They don't need anyone to tell them how to maximize profits. In fact, liberals often say that businesses only care about profits. It seems to me that if businesses cared so much about only profits, they would raise wages to reduce turnover, thus increasing profits. The government would not need to tell them to do so.

And Keynesians claim that firms already pay an extra high "efficiency wage" to reduce turnover.

See Some Additional Questions for Minimum-Wage Proponents by Don Boudreaux of "Cafe Hayek." What he does is similar to what I do here but in alot more detail.