A minimum wage decreases the number of employees working. This can result in a problem of inefficiency at the individual business level. Perhaps a business employs five workers for a certain position. It employs five workers for that position because that is the optimum number of workers needed to complete the tasks of that position. More workers would create a labor redundancy, where multiple workers would be doing the same tasks. Fewer workers would create a labor deficiency, where lack of workers would result in tasks not being completed. Ideally, a worker decrease shouldn’t create a labor deficiency. If the price per workload is consistent, then the increase in wage of the remaining workers should result in their increased labor, keeping the amount of production consistent.
However, this ideal can only be taken so far before it starts to conflict with reality. A position requiring five workers would be affected by a minimum wage increase of 25% by the reduction of one worker in that position. Ideally, the four remaining workers would take on the work of the fifth employee. But what if this was impossible? The individual workers may already be doing the maximum amount of labor possible. Maybe the workers make shoes, and a single worker can only make 10 pairs of shoes an hour. How, then, would a worker take on the labor of a missing worker when it is impossible to increase his output of shoes to more than 10 per hour? A business can only decrease the number of workers so far before it starts to experience a decrease in production at that business.
A decrease in production leads to a decrease in products, sales, and revenue. If revenue becomes too low, the business will not have enough money to pay for its costs (materials, property rental, and the pay of its employees). A business that cannot pay its expenses (makes less than is required to operate) cannot stay in business. It goes out of business (closes permanently).
This is the final way in which minimum wage causes unemployment. The closing of a business takes away all the positions it offered. This leaves less positions available for workers in the job market.
One of the ways minimum wage causes unemployment is that it discourages the hiring of workers with no previous experience. In a system where the price per workload remains constant, an increase in price necessitates an increase in workload. First time workers are paid the least because they do not have professional references vouching for their work ability. It is only after developing a job history and proving themselves capable that new workers earn a wage increase (and corresponding task/work increase.)
However, minimum wage does not consider the ability of those receiving the wage increase. A minimum wage would give a wage increase to those who could take on additional work and to those who couldn’t take on additional work. An employer would want to hire employees who could take on the increased tasks an increased wage necessitates, but it would be difficult telling the difference between workers without any job experience. The solution for the employer would be to hire employees who have had job experience. The employer would choose the ones whose job histories suggest they are capable of handling the tasks of the open position.
Since employers prefer to hire workers with experience, inexperienced workers are less likely to be hired. Minimum wage only exacerbates this issue by setting a higher standard of experience. This creates a particularly disheartening dilemma for inexperienced workers. They cannot get a job without any work experience, but they cannot get any work experience without a job.