The idea behind the minimum wage is to help low income workers by using the power of the state to threaten to imprison people who create a labor contract with a wage lower than whatever the government deems appropriate. This is supposed to help workers by raising their wages.

Of course, it doesn’t work. All the minimum wage does is create unemployment. The problem is that the minimum wage ignores the way wages are determined in a market. Wages are determined by the marginal productivity of workers. That is, if an hour of a worker’s labor creates $10 of revenue for an employer, that worker will make slightly less than $10 an hour.

It is slightly less rather than much less because of competition among employers. Employers want to pay their workers as little as possible, but workers want to be paid as much as possible. If one employer was paying a worker $5 an hour for $10 an hour work, then another entrepreneur could make a profit by offering that worker $6 an hour to work for him instead, and so on until the wage nears the marginal productivity of the worker.

So what happens when the government sets a minimum wage? Obviously, a government declaration can’t make workers more productive for their employers, so the marginal productivity of workers remains the same. If someone’s labor was worth $4 an hour to an employer before the minimum wage, he would make about $4 an hour.

Since the minimum wage doesn’t make that worker’s labor worth more, if a minimum wage above $4 an hour is enacted, he’ll lose his job. A business won’t lose $3 an hour by paying him $7 an hour—they’ll just fire him.

While the minimum wage can’t help the poorest workers, it can help some people. Often, jobs can be done either by many unskilled workers or a few skilled workers.

If a job can be done by either three unskilled workers or two skilled workers, and the market wage for unskilled workers is $4 an hour, and the market wage for skilled workers is $10 an hour, a business will hire the 3 unskilled workers. But if a minimum wage is set at $7 an hour, the unskilled workers would cost $21 an hour. Therefore, the employer would hire the two skilled workers instead.

This is why unions advocate minimum wage increases. Unions represent skilled workers who don’t make minimum wage or anything near it, so increasing it will not destroy their jobs. But by not employing unskilled workers, the minimum wage will increase the demand for skilled workers, raising their wages.

Wal-Mart supported the minimum wage increase a few years ago for similar reasons. Their workers make above what the minimum was going to be set to, so it didn’t affect them. But it did affect the small businesses Wal-Mart competes with. They couldn’t afford to pay their workers as much as Wal-Mart, so many of them went out of business.

Michael Annes is a freshman majoring in mathematics.