In a free market, demand is always a function of price: the higher the
price, the lower the demand. What may surprise most politicians is that
these rules apply equally to both prices and wages. When employers
evaluate their labor and capital needs, cost is a primary factor. When
the cost of hiring low-skilled workers moves higher, jobs are lost.
Despite this, minimum wage hikes, like the one set to take effect later
this month, are always seen as an act of governmental benevolence.
Nothing could be further from the truth.
When confronted with a clogged drain, most of us will call several
plumbers and hire the one who quotes us the lowest price. If all the
quotes are too high, most of us will grab some Drano and a wrench, and
have at it. Labor markets work the same way. Before bringing on another
worker, an employer must be convinced that the added productivity will
exceed the added cost (this includes not just wages, but all payroll
taxes and other benefits.) Read Full Story