By Walter Williams
There is little question in most academic research that increases in the minimum wage lead to increases in unemployment. The debatable issue is the magnitude of the increase. An issue not often included in minimum wage debates is the substitution effects of minimum wage increases. The substitution effect might explain why Business for a Fair Minimum Wage, a national network of business owners and executives, argues for higher minimum wages. Let’s look at substitution effects in general.
When the price of anything rises, people seek substitutes and measures to economize. When gasoline prices rise, people seek to economize on the usage of gas by buying smaller cars. If the price of sugar rises, people seek cheaper sugar substitutes. If prices of goods in one store rise, people search for other stores. This last example helps explain why some businessmen support higher minimum wages. If they could impose higher labor costs on their less efficient competition, it might help drive
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