History
The minimum wage has a strong social appeal, rooted in concern about the ability of markets to provide income equity for the least able members of the work force. For some people, the obvious solution to this concern is to redefine the wage structure politically to achieve a socially preferable distribution of income. Thus, minimum wage laws have usually been judged against the criterion of reducing poverty.
Statutory minimum wages were also proposed as a way to control the proliferation of sweat shops in manufacturing industries. The sweat shops employed large numbers of women and young workers, paying them what were considered to be substandard wages. The sweatshop owners were thought to have unfair bargaining power over their workers, and a minimum wage was proposed as a means to make them pay "fairly". Over time, the focus changed to helping people, especially families, become more self-sufficient. Today, minimum wage laws affect workers in most low-paid fields of employment.
Although the goals of the minimum wage are widely accepted as proper, there is great disagreement as to whether the minimum wage is effective in attaining its goals. From the time of their introduction, minimum wage laws have been highly controversial politically, and have received much less support from economists than from the general public. Despite decades of experience and economic research, debates about the costs and benefits of minimum wages continue today.
The classic exposition of the minimum wage's shortcomings in reducing poverty was provided by George Stigler in 1946:
- Employment may fall more than in proportion to the wage increase, thereby reducing overall earnings;
- As uncovered sectors of the economy absorb workers released from the covered sectors, the decrease in wages in the uncovered sectors may exceed the increase in wages in the covered ones;
- The impact of the minimum wage on family income distribution may be negative unless the fewer but better jobs are allocated to members of needy families rather than to, for example, teenagers from families not in poverty;
- Forbidding employers to pay less than a legal minimum is equivalent to forbidding workers to sell their labour for less than the minimum wage. The legal restriction that employers cannot pay less than a legislated wage is equivalent to the legal restriction that workers cannot work at all in the protected sector unless they can find employers willing to hire them at that wage.
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