Proponents of the minimum wage (the lowest hourly wage firms legally should pay their workers) say that minimum wage improves the welfare of individuals at the bottom of the wage distribution by raising their earnings. This can be achieved with little disruption to workers or businesses. Supported by some recent studies, however, opponents say that minimum wage’s shortrun effects may be negligible, but the long run adverse effects are quite substantial: over time, the higher costs due to a higher minimum wage force smaller firms out of business, and it is here that the drop in employment shows up clearly. After all, the number of workers demanded, like the quantity demanded for all goods, responds to price: the higher the price, the lower the quantity desired. In addition, higher minimum wage also results to more work discrimination, less job training for low-skilled workers, and fewer fringe benefits, all in an effort to hold down total labor costs. The debate is still on, between favoring more jobs, less discrimination, and more on-the-job training versus favoring better wages for workers.
Markets exist when buyers and sellers interact. This interaction determines equilibrium prices and thereby allocates scarce goods and services efficiently. By defining and enforcing property rights, the government sometimes helps in making sure that market prices can perform their role in efficiently allocating scarce resources. However, sometimes, it’s the prices themselves that the government influences, and no matter how noble the reasons are, these government actions lead to adverse effects in the market. In other words, the costs of government policies sometimes exceed benefits. This occurs because social goals other than economic efficiency are being pursued. I think there are better ways for the government to address the welfare issues of workers, policies where the market price of labor is unaffected. Any change in the price of labor would change the behavior of firms, which as shown can be detrimental to the laborers who are, in the first place, the beneficiaries of the government’s intervention. For one thing, the government could shoulder the costs of addressing the welfare issues, like in the form of tax credits. Whatever the implication of this proposal to the government fiscal position is another issue. Bottom line is, if the market price of labor is artificially changed, there will be adverse effects on the allocation of labor and of wage. Labor being an input to production, this will eventually have effects on the market of goods or services.