Minimum Wage

You may have heard of supply and demand.  In the labor market, the suppliers of labor (employees) are represented by the "S" curve, and the employers (McDonalds) represent the "D" curve.  The market will naturally, via Smith's "invisible hand", determine the correct wage for the amount of labor being offered in the economy.  This wage is represented by the intersection of the S and D curves (P1 below), or when Supply = Demand.  When the government decides that this wage is not "fair", they mandate a minimum wage that employers must pay.  This sounds great, right!  Now the little guy gets more money!  Not so fast.  Lets say the equilibrium wage represented by P1 is $6.00.  When the government steps in and requires employers to pay $8 (P2), look at where P2 intersects with the supply curve and the demand curve.  Who is willing to supply labor at $8/hour?  A lot more people, right?  But how many employers demand labor at $8/hour?  Quite a bit less (Q2).  What ends up happening is employers become more efficient with the laborers they already employ.  They do this by laying some of their workers off and increasing the productivity of the workers left over, or by employing machines - which don't require wages.  The government's intent was to raise the quality of living for the equilibrium number of workers (Q1), but the effect is that people get laid off, and the people left with the jobs in the end most likely are not the people that the mandate was trying to help.  

You may be saying, "Sure, that's what the graph says, but that's not what really happens."  There are actually many example of this effect.  Walter Williams describes multiple scenarios on his blog, and here, and proves that the law of supply and demand actually does hold even in this scenario.  The law being: The higher the price of something, the less people will take of it; and the lower its price, the more people will take of it.

More from Walter Williams: First here, Second there, Third somewhere.