Reason has an interesting interview with John Mackey, the founder of Whole Foods. Here he is talking about the minimum wage:
let's say Tom wants to go work for Whole Foods Market, and Tom is willing to work for Whole Foods for, you know, $10 an hour, and we want to hire Tom, and we think Tom is worth about $10 an hour, so we come together, and Tom's winning. We're not forcing him to work there, and he's getting benefits, he's getting opportunities to advance, learn new skills, and make more money in the future. We're gaining from it because we think he's going to be a good employee, and we think $10 is a fair wage. However, the government may not let us do that. They may say, "You can't pay Tom $10 an hour, because we're going to set a minimum wage of $15 an hour." So the government's basically saying, "We know better what's for Tom, and we know better what's for you, and we're not gonna let you guys freely come together and do voluntary exchange."
reason: Well, though, the argument is that especially in an era where there's high unemployment and low labor-force participation, it's a buyer's market. You could probably get Tom—he might be willing—he wants to work for $10, you could probably get him for $5 or $6. So the argument is that somebody's got to look out for Tom.
Mackey: Well, first of all, I think Tom can look out for himself. But B) that's basically a myth. Wages in a marketplace are determined by productivity. Why should we pay Tom even $10 an hour? If we can control the wages, then why don't we just pay him $0.10 an hour? Why not? Because Tom could go get a job someplace else that would pay him better. Wages are determined through competitive marketplace dynamics. And wages will settle at the marginal level of productivity, meaning we might like to pay Tom less, but Tom's not willing to work for less, and he can get a job down the street that pays him what he thinks he's worth. So the competition between employers sets wages.
When the government sets it, it's inevitably going to screw it up, it's gonna set them too high, and so a company like Whole Foods Market—let's say they say the minimum wage is $15, but Tom's only worth $10 to us, well, what we'll do is we'll restructure our marketplace so that we'll provide less service. We're actually a very high-service supermarket, but if they make service too expensive, so our customers aren't willing to pay for it, then the rational, logical thing to do would be to cut back, do less service, do more self-service, make people queue up in lines longer, so we can keep our labor costs under control so we can be competitive in the marketplace.