Over at theobjectivestandard.com, Ari Armstrong, has a very good write up on minimum wage theory.
Minimum wage laws are anti-labour, anti-prosperity, and lead to unemployment and impoverishment. They destroy businesses, are unconstitutional, as they violate the freedom of two individuals to contract on mutually agreeable terms. They also make employment impossible for all those who are worth less than minimum wage for an employer.
“The fact that no one can agree on what a “living wage” is—is it $10, $12.50, $15, or some other number plucked from the air?—indicates that the phrase is totally arbitrary.
If the phrase means anything in literal terms, it would have to mean a subsistence wage. But no advocate of the so-called “living wage” wants to forcibly reduce wages to that required for mere subsistence. Instead, everyone who advocates a “living wage” wants to force employers to pay workers more than they currently do. (Although minimum wage laws would be immoral in any case, the fact is that most people who earn the minimum wage don’t supply the sole income on which their household is living, anyway.)
What advocates of a “living wage” are really after is an arbitrarily set wage floor—a legally mandated minimum that employers must pay employees regardless of all relevant facts pertaining to their businesses.
The economic case against the minimum wage is well known and easy to grasp (see, for example, recent articles by David Boaz and Thomas Sowell). If the government forces employers to pay employees more than their work is worth to employers, then employers will either refrain from hiring the potential employees or fire those who don’t provide value in excess of the legally mandated minimum wage. Thus, one consequence of minimum wage laws is that many people—particularly the young and inexperienced—end up out of work completely and, of course, are therefore unable to gain work experience and earn higher wages in the future.
Moreover, when the government forces up the costs of doing business, affected businesses must either scale back their operations or pass along the costs to their customers. This means, among other things, that wage controls force people (including the poor) to pay more for the food, clothes, medications, and other goods and services they consume.
But the economic harms that minimum wages impose do not stop advocates of such laws or even give them pause. Why? People who advocate minimum wage laws do so not because of their economic beliefs but because of their moral beliefs.
The (allegedly) moral premise behind minimum wage laws is altruism, the notion that being moral consists in sacrificing for others. On this premise, employers have a duty to sacrifice their own interests for the benefit of their employees—and government has a responsibility to force employers to act in accordance with this duty. According to altruism, business owners who act to maximize their profits thereby act immorally and must be forced to operate their businesses (at least in part) in accordance with the duty to sacrifice.
But, as a matter of demonstrable moral fact, business owners do not have a duty to sacrifice their interests for the sake of their employees, and they should not be forced to do so. The owner of a business, having built it or bought it, owns the business; he has amoral right to run it in accordance with his own judgment; and he has a moral right to hire employees on voluntary terms that make sense to both parties, given their needs, goals, and circumstances.
Of course, to run their businesses successfully, employers must offer competitive wages that attract, keep, and motivate quality workers. Likewise, to keep their jobs and earn higher wages over time, employees must provide their employers with value for value received. Thus, voluntarily agreed upon wages create a win-win, virtuous cycle in which both employer and employee can profit more and more over time. If at any time either the employer or the employee thinks that the relationship is no longer in his best interest, he is properly free to terminate it (in accordance with the terms of their agreements).(from the article)
Read the article here.