We often see in TV programs or news that US presidents and politicians are everywhere promoting their political and economic propositions, among which the labor law and the minimum wage law are controversial.
The U.S. minimum wage law requires that any employer pay wages no less than the legal minimum wage. The United States Congress passed the Fair Labor Standards Act in 1938, which for the first time established a minimum wage and aimed to ensure a minimum standard of living for workers. In 2009, under federal law, the minimum wage was $7.25/hour (in the U.S., some states set minimum wages higher than federally mandated levels). Most European countries also have minimum wage laws. Some countries, such as the UK and France, set minimum wages that are much higher than those set by the US.
On the surface, minimum wage laws seem like a gift from God to workers, and every worker rejoices. So what is the actual effect it brings to the society, we have to analyze it from the perspective of economics.
To analyze the effects of minimum wages, we must consider the labor market. Figure (a) plots the supply and demand curves for the labor market, which, like all other markets, is constrained by the forces of supply and demand. Workers determine the supply of labor, and firms determine the demand for labor. If the government does not intervene, wages will generally adjust so that the supply of labor equals the demand. As shown in Figure (b), it is the case where the market has stipulated the maximum wage. If the minimum wage is above the equilibrium wage level, as is the case in this case, the quantity of labor supplied exceeds the quantity demanded. The result is unemployment. Therefore, the minimum wage law increases the income of low-income workers (referring to low-income workers), but reduces the income of the unemployed.
To fully understand the minimum wage, remember that the economy is not just one labor market, there are many labor markets, and these labor markets are made up of different types of workers. The effect of the minimum wage depends on the skill level and experience of the worker. Skilled and experienced workers are not affected because their equilibrium wages are above the minimum. For these workers, the minimum wage is not a tight constraint. The minimum wage has the greatest impact on the youth labor market. Equilibrium wages are lower for young people because they are the least familiar and least experienced workforce. Moreover, some young people are willing to accept low wages for the purpose of learning by doing. Many young people are willing to be paid as "interns" instead of paying or asking for a lower salary, and if the government imposes a minimum wage constraint, these internship opportunities for them may disappear.
Let's take another realistic example. If you are an American worker, your output value is 20/hour (20 dollars per hour to the employer), and the government stipulates that the minimum wage in this industry is 15 dollars per hour, then you will not be affected by the minimum wage. . If, unfortunately, your output value is only 10/hour, which is lower than the government's minimum wage of 15, then you will be fired. Because your labor output doesn't meet the government's minimum standards (businesses are not charities, they're after maximizing profits). We can see that the minimum wage law actually raises the entry threshold of the industry and increases the unemployment rate of workers.
Many economists have studied the impact of minimum wage laws on the youth labor market. These studies show that a 10% increase in the minimum wage reduces youth employment by 1% to 3%. When interpreting this result, you should note that a 10% increase in the minimum wage did not increase the average wage of young people by 10%. The change in the minimum wage law has no direct impact on the part of the population that is already above the minimum wage. The implementation of the minimum wage law is Flawed, therefore, a 1% to 3% drop in employment is already very large.
In addition to changing the quantity of labor demanded, the minimum wage law also changes the quantity of labor supplied. Since the minimum wage provides wage income that young people can earn, it increases the number of young people looking for work. The study found that higher minimum wages affected the jobs those young people could find. When the minimum wage went up, some young people who were still in secondary school opted to drop out and work. These young dropouts replaced those who dropped out earlier, who were left unemployed.
The author's conclusion: The US minimum wage law has changed the demand and supply of the labor market. A higher minimum wage increases the supply of workers and reduces the demand of enterprises, thus leaving the market in an unbalanced state. Higher minimum wages raise barriers to entry for industries, leading to higher unemployment and worse living conditions for workers.