An Unseen Consequence of the Minimum Wage

It is easy to see a direct consequence of minimum-wage laws — the unemployment they produce by pricing people out of the labor market. If a person’s labor has a market value of less than the state-mandated minimum wage, he will be laid off or simply not employed. Businesses are not in the business of losing money.

But there is an unseen consequence of minimum-wage laws that is rarely discussed, one that we don’t see. That consequence is businesses that never come into existence in the first place because of minimum-wage laws.

Suppose a person in the inner city wants to start a retail business in his neighborhood. He has enough capital to rent a place and to purchase inventory. He doesn’t have enough money, however, to hire workers at the minimum wage.

Without the minimum wage, he could offer to hire inner-city teenagers at, say, $5 an hour. The teenagers might be willing to do it because they could learn how a business gets started so that they, later on, could do the same.

But a $7.50 per hour (or higher) minimum wage prevents that inner-city entrepreneur from hiring those teenagers at $5 per hour. That means that the entrepreneur never opens his business.

It is impossible to know how many businesses serving consumers would have come into existence but for the minimum wage. It is an unseen consequence of minimum-wage laws.

The post An Unseen Consequence of the Minimum Wage appeared first on The Future of Freedom Foundation.

* This article was originally published here

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