Almost everyone has heard of the 'Law of Demand', and anyone who has taken an introductory class in economics is taught this law: other things being equal, the quantity demanded of something is inversely related to its price.
But more than that, we all experience it directly, since it expresses an external constraint on human behavior, that everyone is unable to buy more of something as its price rises.
Here is the classic graph that shows the basic relationship between supply and demand. The demand curve slopes down from left to right, indicating the inverse relationship between demand and price — everyone demands less as price rises. The supply curve slopes up from left to right, indicating the direct relationship between supply and price — rising prices cause more of something to be produced, since the increasing price increases the reward for producing that something.
But why do we know the Law of Demand is true, and that the demand curve above must slope down to the right, indicating that price and quantity demanded are inversely related? It certainly is not because some academics believe it (many do not — at least not consistently). It is because it is impossible for it not to be true.
Why? Because the Law of Demand is restating an obvious fact of simple arithmetic, that when you perform a division, the result (or quotient) must get smaller as the divisor (or denominator) gets larger. Even school age children learn fairly early that when you take larger pieces of something, there will not be as many pieces to go around.
In determining how much you can buy of anything, you divide the amount of money you have available to spend (what you have produced), by the unit price of whatever you would like to buy, like this:
My Money / Unit Price = Quantity I Can Afford.
So when prices rise, the effect is to divide the money available for spending (the available production) into smaller quantities. For example, it is pretty obvious that if your favorite hamburger cost $10, and you have $100 available from your pay each month to spend on hamburgers (after all other expenses), that the maximum quantity you can demand of those hamburgers is $100/$10 = 10 hamburgers. If the price of those hamburgers doubles to $20, but your income does not change, then you can only buy $100/$20 = 5 hamburgers.
Obviously, there is nothing new here. But it is important to point out that nothing is altered about this basic relationship by the complications of the modern day economy. In essence, simple division explains why the Law of Demand must be true and universal, since if it were not, it would mean that the behavior of division must be inconsistent, behaving differently in different cases.
And note that quantities of money have nothing to do with it — using money as the measure of cost and productivity is just a convenience that everyone is familiar with. Money, in this sense, is just a tool of exchange, and represents the value of labor (the value of your productivity). If you were stranded on a deserted island, and you had to climb coconut trees to gather coconuts to survive, your daily demand for coconuts would be computed like this:
Daily Working Hours / Average Hours to Get a Coconut = Daily Quantity of Coconuts.
And so if one day you jumped down from a tree while gathering coconuts, and you badly sprained your ankle on the landing, and the injury doubled the average amount of time it took you to gather a coconut, your demand for coconuts would be cut in half, just as it was for hamburgers in the previous example above, since in both cases the cost to you has doubled — nothing necessarily changed about the good you were trying to acquire, but your ability to produce it, or produce enough to trade for it, has decreased.
When viewed in this way, it is immediately obvious why demand is inversely related to price. To say that the demand curve is flat, or that it sloped up to the right, would be to say that the quantity you could produce, was in now way affected by how long it took you to produce it — i.e. that you could acquire more of something, as the cost to you was increasing.
This is obviously impossible.
So, do you have to do a study to show that raising the minimum wage will reduce employment to the degree that individuals were earning less than the higher wage amount?
No, of course not, since if the minimum wage were raised above market rates, while there was no corresponding increase in the available capital to purchase labor, and unemployment did not increase, it would mean that the behavior of simple arithmetic changed, that the law of demand stopped working, and that employers could purchase just as much labor, as the cost was increasing.
That is, this same relationship holds:
Money Available to Purchase Labor / Unit Cost of Labor = Quantity of Labor Purchased
Since the unit cost of labor is the divisor, increasing it in isolation must reduce the quantity of labor that can be employed. Even if employment went up after a minimum wage increase — which is still possible, depending on how far the new minimum is below prevailing wages — if there are any individuals who are not worth the new minimum, employment must still be less than it would have been without the minimum wage increase, since a minimum wage makes it uneconomical to hire those with skills that are worth less. Increasing the cost of labor can only cause a decrease in employment, since the increase reduces the amount of labor that can be purchased.
Even if you believe that businesses can exploit individuals, and pay them far less than their labor is worth, raising the minimum does nothing to change that situation. The obvious implication of this view is that businesses can simply charge their customers far more than it costs to produce something. If this were true, raising the cost of labor would not eliminate that power — this belief implies that businesses can easily pass cost increases onto customers, since by assumption, they were charging well over their costs to begin with. And so this means workers will just spend more on rising prices as a result of the wage increase, leaving them no better off — everyone will just be spending more, whether or not their income went up.
This is what is so comical about comments about how little prices would have to go up to support an increase in the minimum wage. Here is a blog post regarding Senator Elizabeth Warren's (D-MA) comments on this issue back in March, 2013, that is titled as if Warren 'dismantled a right wing talking point' that is obviously false —
http://boldprogressives.org/2013/03/watch-elizabeth-warren-bat-down-right-wing-talking-points-about-the-minimum-wage/
http://archive.is/ARCPK
WARREN: During my Senate campaign, I ate a number 11 at McDonald’s many, many times a week. I know the price on that. $7.19. According to the data on the analysis of what would happen if we raised the minimum wage to $10.10 over three years, the price increase on that item would be about four cents. So instead of being $7.19 it would be $7.23. Are you telling me that’s unsustainable?
Again, if prices have to rise to compensate for the increase, will not workers making minimum wage be in exactly the same position as they were before the increase? This is just inflation, that does nothing to improve anyone's living standard.
The minimum wage is such a useful issue for demagogues, because it plays into popular public biases. Regardless of knowing how difficult it is to start a business, and regardless of knowing how many businesses fail, people still act as if there is no competition for labor, and that businesses can pay workers as little as they want.
Even many economists support minimum wage laws. Here is a letter signed by over 600 economists in support of an increase to the Federal Minimum Wage --
http://www.epi.org/minimum-wage-statement/
https://archive.is/VDDtV
Here is an excellent article by Walter Williams, John M. Olin Distinguished Professor of Economics at George Mason University, where he points out the absurdity of supporting minimum wage laws as a way to fight poverty, since we could eliminate poverty everywhere, if this worked. But he goes on to make the rarely heard point that minimum wage laws are discriminatory, and hurt minorities the most. He gives the example of the openly racist South African Building Worker's Union, and its support for minimum wage laws for blacks, as a way to price them out of the labor market --
http://www.fee.org/files/docLib/0703williams.pdf
Here is a recording of Walter Williams and Thomas Sowell discussing these issues with minimum wage laws —
https://www.youtube.com/watch?v=b4Ubp7U9Dq4
http://walterewilliams.com/minimum-wage,-maximum-folly/
The disagreement among economists on the effects of minimum wage laws, would be like physicists being divided on the effects of gravity.
But since it is easier to support a popular bias, than explain why that bias is false, minimum wage laws will likely continue to get widespread support, despite that such laws only harm people.
Here is Elizabeth Warren again, pretending she is fighting for the underdog by supporting an increase in the minimum wage --
http://archive.is/Ks5f3
http://abcnews.go.com/Business/17-million-reasons-raise-minimum-wage/story?id=23054905
http://archive.is/p7PgP
As they say, with friends like these ...
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