This piece was originally published by the Ludwig von Mises Institute on February 11, 2013.
Employment law is a mainstay of state economic policy. Few question its efficacy as a means to correct “market failures”—like unlivable wages for meaningful work—that would leave society in shambles. In fact, no serious debate exists among American policymakers about the benefits of such laws. Their utility is simply assumed.
But laws that restrict or stipulate the terms of voluntary employment contracts stifle economic progress and make life harder for everyone—even those for whom the laws were designed to aid.
Minimum wage is the most basic example of such a law. By outlawing employment below a certain wage-rate, the state ensures that no one works for less than what its officials consider a “living wage.” The first federal minimum wage legislation was the Fair Labor Standards Act. Since its passage in 1938, the bill has been amended many times—usually to adjust the minimum wage to account for inflation. Today, the federal minimum wage is $7.25 per hour.
In the act, Congress determines that “the existence … of labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers” causes inequity, burdens commerce and “the free flow of goods in commerce,” and leads to labor disputes that further hamper free commerce. Minimum wage is their solution to this problem.