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The Minimum Wage

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  • December 2011
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The Minimum Wage

Some of the world’s greatest problems consist of people jumping to a conclusion and assuming without meticulously analyzing all consequences and effects of it. An example of this is the Prohibition Act of 1920 where the politicians believed it was a “good,” idea to ban alcohol, but after seeing the consequences of increases in violence, defective products, and gangs, it was soon repealed. This problem occurred partly due to the fact that the people did not realize that illegalizing alcohol would lead America to violent-orientated world. Consequences that are not often noticed by the general public are called, the “unseen,” as famous economist Henry Hazlitt once labeled it (Hazlitt [1]). It is important to analyze and understand the consequences of each policy before it is passed to avoid harming the public and creating a worse problem than there was before the policy was passed. Just as the Prohibition Act was not carefully analyzed in the 1920s, the same problem exists today with the minimum wage. The general public believes the minimum wage will help the low-skilled and the poor, and therefore is imposed as an act of compassion. However, some effects of the minimum wage are “unseen.” When the minimum wage is imposed, it makes the workers worse off because it creates unemployment among the poor and the low-skilled through supply exceeding demand, workers favoring skilled labor over unskilled, and employers creating a destruction of low-skilled jobs, it makes the poor and low-skilled worse off by allowing employers to take away fringe benefits of the job, and it creates unemployment among the most low-skilled and poor group, the blacks, by allowing employers to discriminate against them. In the economy, the markets are subject to the forces of supply and demand. The demand of a good has a negative relationship; an increase in price causes the quantity demanded for the good to decrease. By contrast, the supply of a good has a...

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