How minimum wage laws might give employers more power

From Cafe Hayek.

"Caleb Fuller explains five different ways in which many empirical studies of the consequences of minimum wages fail. A slice:

Price controls can’t stipulate every aspect of an exchange. Usually, the only contractual term they alter is price. Market participants are free to change other margins of the exchange, and the disequilibrium created by a (binding) minimum wage gives them an incentive to do so.

Gordon Tullock offered the following famous example. Imagine factory workers on a hot summer day. The plant manager gets the bright idea of cutting costs by shutting off the AC. Before long, the workers begin complaining. If the owner wishes to retain these workers, he’ll likely respond by flipping the AC back on—he doesn’t want to lose these laborers to the employer across town who offers better working conditions.

So how does the minimum wage alter this calculus? If it’s binding, it transforms a situation of market-clearing, the process of moving towards an equilibrium of quantity supplied and quantity demanded, into one of surplus. And a labor market surplus shifts power from sellers (laborers) to buyers (employers). A surplus of labor means a buyer’s market. Employers can pick and choose, and their offer on margins other than wage needn’t be as attractive as it had been.

Now when the plant shuts off the AC and the workers begin complaining, the owner metaphorically responds: “You don’t like it here? Feel free to leave. There are a hundred other workers who will take your place tomorrow.” The labor supply curve is at work to the employer’s advantage. More workers are entering this labor market due to the minimum wage (what economists refer to as the “extensive margin”). Notice something else: It will be harder for workers to find alternative employment precisely because a labor surplus prevails. As a result, the workers are less likely to leave and seek another job.

It’s, therefore, possible that a.) the total number of laborers employed remains unchanged and b.) employers restore profitability by cutting their electricity bill. Again, enabled by the “power” the minimum wage affords these employers."