How the Minimum Wage Works

by Russ Roberts on March 29, 2005

in Work

Warren Meyer over at Coyote Blog has a fascinating analysis from his real world experience of how the minimum wage actually works in practice.  Most economists think the minimum wage decreases employment by making low-skilled labor more expensive than it otherwise would be.  This in turn reduces the demand for labor, encourages the substitution of capital for labor, and reduces the viablity of the enterprises paying the higher wage.  True?  Well, it makes sense to an economist.  But Meyer actually explains the true microeconomics of the minimum wage so you can really see how it works.  Or maybe it’s minimicroeconomics.  Whatever you call it, it’s superb.


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