ON LEGALLY ENFORCED MINIMUM WAGES

This paper offers a critique not only of raising government-enforced minimum wages but allowing them to continue in existence. This law makes it impossible for some unskilled workers to obtain employment and raises no one's wage in the long run. Minimum wages are defended, primarily, on the basis of an ethical (in our view, mistaken) point of view, not on economic grounds. We analyze the economics of wage determination and explain why minimum wages thwart the process of increasing capital formation and thus real wages. Hence, since wages are the result of discounted marginal revenue products, any intervention to artificially increase them not only ends up harming workers on the margin (those whose productivity is below levels mandated by law), but also distorts the labor market, capital allocation, and economic growth and development.