Before beginning to write this article, I was of the opinion that minimum wage should at least be adjusted for the cost of inflation, but I had put little additional thought into the matter. Raising the minimum wage is certainly a popular idea with Americans today. Indeed, Americans overwhelmingly support an increase in the minimum wage. Sadly, however, we can not rely on the good judgment of Americans at large to determine what is a good idea (we can’t even count on them to stick to their guns….war in Iraq, anyone?).
The idea of a minimum wage was originally applied in Australia and New Zealand. The U.S. Federal minimum wage was established in 1938 at $0.25/hr and covered less than half of all jobs. The current minimum wage is $5.15 and covers more than 75% of all jobs.
I’d like to discuss some of the implications of a minimum wage hike and some of the claims that have been made about its effects. But before I delve into the details of the wage hike, I think it’s important for a brief reminder of market economic theory 101.