Minimum Wage Hikes – Compassion or Economic Folly?

A new Rasmussen Reports survey reveals that 40% of Americans now believe the minimum wage should be at least $15 an hour, up from 36% a year ago. That’s a strong sentiment. After all, who doesn’t want working Americans to earn more? But compassion and sound economics are two very different things.

In fact, the optimal minimum wage from an economic perspective is zero. This isn't an insult to workers but a recognition that government cannot create prosperity by decree, despite campaign promises. When wages are set by law instead of supply and demand, the first casualties are often those who need an entry point, such as teenagers, part-time workers, and adults looking for a second job to supplement their income.

Contrary to the stereotype, minimum wage jobs are usually not held by middle-aged breadwinners trying to support a family on $7.25 an hour, which is the federal minimum wage. Most are young workers in their first jobs or those earning additional income. These jobs act as stepping stones, providing opportunities to learn responsibility, develop workplace skills, and build a résumé. They are not meant to be long-term careers.

Raise the wage floor too high, and these rungs on the ladder are cut off. Small businesses can’t afford to hire the inexperienced at inflated rates. The result? Fewer opportunities for exactly the workers who most need them.

There's no need to speculate about the effects. Here are some examples:

– In San Francisco, Borderlands Books, a beloved neighborhood bookstore, announced it would close in 2015 after the city mandated a $15 minimum wage. Payroll costs were expected to rise by nearly 40%, rendering the store unsustainable despite strong community support.

– In Seattle, researchers discovered that when the minimum wage rose from $11 to $13, employers reduced the hours of low-wage workers by approximately nine percent (9%), negating the benefits of the increased pay. On average, these workers lost about $125 per month in income, which harmed the very people they claimed to support. This year, Seattle’s minimum wage rose to $20.76 an hour, and several restaurants announced closures, citing unaffordable labor costs.

– In my home state of Colorado, more than 200 restaurants closed in 2024, with Denver losing 22% of its restaurants in the past three years, largely due to its high minimum wage. Rather than course correction, Denver is doubling down by raising the minimum wage to $19.29 on January 1, one of the highest in the nation.

These aren't just isolated stories. They illustrate the fundamental economic principle that when something costs more, people buy less of it. In this case, that “something” is entry-level labor.

Supporters argue that people can’t survive on $7.25 an hour, and they’re right. But here’s the counterpoint – almost no one actually does. Only about 1% of the workforce earns the federal minimum, and many of those are young, part-time workers who don’t depend on that wage to support a family.

Some argue that businesses can just raise prices to cover higher wages. This ignores economic realities. Consumers are sensitive to costs. Raise menu prices too much, and diners will cut back. For low-margin businesses like restaurants, higher wages often result in fewer staff or a “closed” sign on the door.

Finally, advocates rely on moral arguments. Isn’t it fair that everyone earns a “living wage”? But good intentions don’t override economic laws. Why not raise the minimum wage to $25, $50, or even $100 an hour? Eventually, even supporters of a higher minimum wage will stumble over this absurdity.

If the true goal is to help families in need, maybe the government could reduce its deficit spending since it fuels inflation, a hidden tax that particularly hurts lower-income families.

We should learn from history. Wage and price controls have been tried before, especially in the 1970s, and they have consistently failed. Do you remember the gas lines caused by President Nixon’s price controls on gasoline?

Artificial ceilings and floors distort supply and demand, cause shortages, and drive inflation. The minimum wage is just a modern version of the same failed experiment, leading to scarcity instead of prosperity.

A zero minimum wage doesn’t mean workers earn nothing. It allows the market to set pay based on skills, productivity, and demand. Entry-level positions would still be available. Workers can gain experience and improve their economic standing. For those still facing hardship, society could offer direct, focused support instead of harmful mandates.

The Rasmussen Reports poll shows compassion. But compassion alone isn’t policy. Mandated wage increases may seem generous, but they decrease opportunities and cause businesses to close. True compassion is ensuring opportunities are available from the start. Reckless government spending erodes such opportunities.

The ideal minimum wage, from an economic perspective, is zero, not because workers are valueless, but because they should have the chance to show their worth. History, economics, and real-world examples all demonstrate that wage and price controls don't work. Markets, on the other hand, do.

Brian C. Joondeph, M.D., is a physician and writer.

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