In economics, the law of demand clearly tells us that if wages for unskilled workers increase, employers reduce their demand for those workers, resulting in unemployment for unskilled workers. The entire economics profession almost unanimously agrees that minimum wage laws create unemployment and are harmful to the economy.

It is only in the make-believe world of politics that anyone could be misguided enough to advocate that legislation can somehow suspend or ignore the basic laws of economics. Regardless of what politicians want to believe, there are many things that the minimum wage cannot do; and it is the things the minimum-wage law cannot do that makes it bad legislation.

Minimum wage laws cannot make a worker's services worth a given amount. Minimum-wage laws can't guarantee that workers will find jobs. Minimum-wage laws can't prevent companies from firing workers, refusing to hire them in the first place, cutting back on employee benefits, or reducing the number of hours worked. In other words, minimum-wage laws can't force employers to ignore the laws of economics.

In fact, it is because employers follow economic laws that minimum-wage laws guarantee the loss of jobs or the reduction in benefits. Employers of unskilled, minimum workers will respond to an increase in the minimum wage in several ways.

First of all, workers whose skills are not worth $6.65 an hour will either be fired or not hired in the first place. Workers whose productive efforts contribute only $5 of value per hour to the employer cannot get paid $6.65 an hour without generating losses for the company.

Companies are in business to make money and will therefore not find it in their economic interest to hire those marginal workers. Economic studies show that for every 10 percent increase in the minimum wage, companies typically respond by reducing demand for labor by 1 percent. Therefore, a 29 percent increase in the minimum wage, from $5.15 to $6.65-an-hour, would reduce the demand for labor by almost than 3 percent, which represents thousands of lost jobs.

How can the thousands of unemployed workers be better off without a $6.65-an-hour job than they would be with a job that pays $5.15 an hour?

The second way employers respond to a minimum-wage increase is to reduce the nonmonetary forms of compensation to offset the higher pay mandated by law. Workers who keep their jobs may see their money wage increase to $6.65 an hour but may then find that benefits such as health care are reduced. There will also be less on-the-job training. Workers may now be pressured to work harder to increase productivity. Workers' weekly hours may be reduced or they may be assigned to work hours that are less convenient than before. Uniforms may now have to be purchased by the workers instead of the employer.

Raising the minimum wage will hurt the economy, especially the displaced workers who will be priced out of the labor market by artificially high wages. The real problem facing the workers affected by the minimum wage is not that they are underpaid but that they are under-skilled.

Wages are determined in the economy by a worker's productivity, not by how much politicians think wages should be. Workers can only develop skills and increase their productivity by staying in the labor market and working. Raising the minimum wage in the United States will deny job opportunities and training to those who need them the most - unskilled workers. To truly help unskilled workers now and in the future, politicians shouldn't increase the minimum wage; they should repeal it once and for all.

Mark J. Perry, Ph.D.
Department of Economics
University of Michigan-Flint