The Minimum Wage Fallacy

In this article, I would like to dwell on the topic of the minimum wage and address specifically the audience that believes in the minimum wage mandate. I know well that the vast majority of Independent Institute readers do not fall for that widespread fallacy. However, as someone who once earned less than the mandated minimum, my personal experience may convince affected readers to reconsider their perspective.

In the beautiful October of 1994, just three days after my arrival in the United States, my relatives introduced me to a man who offered me a job. The job was to distribute so-called “junk mail,” all kinds of supermarket flyers, to apartment buildings and private houses. The job did not require any skills or knowledge of the language. He offered me three dollars per hour, although the minimum rate at that time was established at four dollars and twenty-five cents. I was not aware of any such law, but I gladly accepted the offer.

Three dollars per hour translates to about $672 per month. I remember I could buy a good meal for about six dollars at a Chinese restaurant. In addition, I had the opportunity to familiarize myself with the Big Apple, as we worked in different parts of the city, some of which I had never visited since, and some of which I never want to visit again. With a studio rent of four hundred eighty dollars plus utilities, my monthly salary paid for our dwelling. My wife became a cleaning lady, and the New York Association for New Americans (NYANA), which we called “Na-Ya-Na,” was a nonprofit organization that supported new immigrants. We were fortunate to receive four months of monetary support and English classes in the evenings.

Overall, we could pay rent and utilities, study English and American life, and not economize on food at all. This was the beginning of two PhDs’ new life.

Those three dollars per hour suited both the owner of the business and me. Nobody forced me to accept the offer; it was my own decision based on my limited communication abilities at that time. It would have been impossible for me to apply my actual skills without proper reading and listening comprehension. There was a niche in the market for people with such limited skills. On the other hand, the owner was able to pay me reliably and sustain his small business. He did not need highly skilled workers to distribute flyers. It was a perfect match, and together we chose (with no conspiracy) to “override” the minimum wage mandate by simply obeying the law of economics. This was a personal experience; now let us consider economic theory.

Recently, I came across a commercial by Mayor Mamdani, who advertises his approach to supporting small businesses. He correctly identifies over-regulation as one of the unnecessary obstacles in opening and conducting small businesses in New York. Then he suggested creating yet another department in the mayor’s office, which would help businesspeople navigate the web of requirements the city demands from businesses. (It looks like a socialist brain is pre-wired to produce this kind of solution: any issue needs its own bureaucratic apparatus.) But he never mentioned the main reason why it is so difficult for new small businesses to survive, besides high rent, that is the minimum wage mandate. On the contrary, among his priorities is to raise the city’s minimum wage. He imagines politicians can decree prosperity by commanding higher pay. It is an old socialist urban legend that refuses to die, even though history has disproven it repeatedly.

The minimum wage is not merely a misguided policy; it profoundly violates economic and moral common sense. First, let us discuss morality. Is it morally normative for a state to paternalize a relationship between two consenting adults while they are negotiating a business agreement? Should a business owner and employee be free to make a voluntary agreement?

To understand the absurdity of this interference, consider a simple household. Imagine the government declaring that every parent must give each child a weekly allowance of $40. Even a socialist father would immediately object. He would insist that an allowance is a private family matter. He would say that he, not the government, knows his children and understands what he can afford. He would argue that the state has no right to dictate how he manages the home.

And yet that same man may support the state telling a private employer how much to pay the young worker who wants to sweep floors at his grocery store. The contradiction is obvious. If the government has no right to intrude into the household economy, it certainly has no right to intrude into the business economy. A voluntary contract between employer and employee should be as private as the allowance agreement between father and child.

Now, let us discuss the economic implications. The minimum wage mandate is both an employment barrier and a price structure foundation. The employment barrier means that a wage set above a worker’s productivity makes that worker unemployable. If a teenager can produce only twelve dollars of value per hour but the city forces employers to pay twenty, the teenager never gets the job. His first rung on the economic ladder is sawed off in the name of “justice.” Instead of helping the poor, minimum wage laws often harm them first. They eliminate the very entry-level jobs that teach skills, build habits, and open the path upward. The young, the unskilled, new immigrants, and recovering individuals trying to re-enter society pay the highest price for leftist economic fantasies.

There is a second truth: wage hierarchies do not stand still. When the bottom level rises artificially, every level above it must rise too. The entire wage structure shifts upward as more qualified employees demand that the gap between their wages and the wages of those below them remain wide enough. The vicious cycle begins: skilled employees, supervisors, technicians, and managers ask for more. Costs go up, which in turn causes prices to rise. The end result: inflation spreads and affordability is undermined. It is an inevitable consequence of intervening in a complex price system that coordinates everything in a modern economy.

Minimum wage laws are an act of ideological aggression against the natural order of the market. Prices, including wages, are signals. They communicate scarcity, productivity, and preference. Politicians treat these signals as an injustice to be corrected by decree. A minimum wage is sold to the public as a way to “fight poverty.” But its real legacy is destroyed opportunity and higher consumer prices. It is a policy based on a belief, not evidence, akin to the economic version of homeopathy: lots of hope, but no cure. Yet socialists cling to it because they love the feeling of doing good more than the reality of good outcomes.

Every experiment with minimum wages brings the same result: the opposite of what they try to solve: higher prices for groceries, deliveries, services, and rent. And a thicker layer of bureaucracy, since the policy needs armies of inspectors and enforcers. This is not an unfortunate side effect, but rather it is the logical outcome of denying economic law.

The minimum wage is an outdated relic of Marxist wish-thinking. It has never delivered what it promised. It is time to treat it as what it truly is: an economic fallacy dressed as compassion. If we want a stronger economy and more opportunities for those at the bottom, the first step is simple: stop the state from telling free people the price at which they may work.

This piece originally was posted by the Independent Institute.