Raising Minimum Wages Results In More Unemployment

Raising Minimum Wages Results In More Unemployment

In a truly free market, the right wage is found where the demand for labor (D1) intersects with the supply of labor (S1).  The supply is simply the number of individuals (Quantity = q1) willing to work for the wage (W1) provided.  The demand is simply the number of employees businesses are willing to hire at a particular wage.  On a graph this is depicted as the intersection where the labor supply (S1) and labor demand (D1) lines intersect.

Raising the minimum wage results in an influx of workers and shifts the supply line left (S2).  It also results in a leftward shift of the demand for labor (D2), as employers are unwilling to hire and/or retain the same number of employees at the higher wage.  The raise increases the number of workers willing to work than before, but the demand for labor decreases from q1 to q2 resulting in greater unemployment numbers.

The reasoning for this shift is simple.  The employer, generally having small profit margins, may either pass the increased cost along to its customers or cut employment rolls.  As an increased cost to customers often reduces sales, many will decide to layoff workers instead.  Some will gain income while others will lose it altogether.

Raising the minimum wage is detrimental to the creation of jobs, damaging to the employment of young people, especially teenagers, and harmful to employers who are forced to do more with less.  It's all politics and nothing more.