The Law of Demand Applies to Labor

A foundation of economics is the law of demand: at higher prices, less of a good or service will be purchased than at lower.

While most people comfortably accept the law of demand for most goods and services, many resist accepting it for low-skilled labor. They don’t want to believe that minimum wage laws, by forcing up the price of low-skilled labor, reduce the number of workers hired. They see the higher wages for some; they don’t see the elimination of wages for others.

A case of such inability (or refusal) to see was published in my hometown paper, the Baltimore Sun, in March (“A $15 minimum wage benefits Baltimore business”). Here is a slice of my response to its author, published at Learn Liberty:

Dear Ms. Murray,

… You write that “[t]he proposed law would raise the wages of tens of thousands of workers in Baltimore City. That means more people will be able to reduce their reliance on public assistance programs.” No, it does not mean that. While higher minimum wages do “raise the wages” of some, you ignore that they eliminate the wages of others laid off or never hired. Those lost wages might mean more reliance on public assistance overall, not less.

You write that “[c]ity residents will use the extra salary in their pockets to purchase goods and services at the local level, right here in Baltimore, bringing more business to stores like mine.” Are you sure there will be “extra salary”? You ignore that those laid off or never hired would have no salary at all, let alone extra. Those losses might mean less business on net for stores like yours.

You write that “wages for many Baltimore residents remain painfully low even though the economy has recovered to some extent since 2008.” Agreed. And it’s a shame. But you imply that a government decree raising wages paid would raise wages in general. It wouldn’t. You ignore that such a decree would lower to zero the wages of those laid off or never hired.

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