I want to try to smoke out what is problematic about the minimum wage. A minimum wage is saying a firm that wants to make a job offer and a worker who wants to accept that offer are not allowed to make a deal.
1. To clarify things, an interesting variant of a minimum wage policy that would avoid this would be to say that the minimum wage applies only to existing jobs, not to new hires. This limits the minimum wage increase to the already existing employment relationships that I think are the foundation of people’s intuition that the minimum wage is a good thing.
2. Going a little further, to avoid distortion, it might be necessary to allow a firm and a worker to agree to a contract that opts out of any possible higher minimum wage in the future.
To make this policy more realistic, almost all distortion can probably be avoided even if there is a time limit of a year or two from the moment of hiring on how long a contract can opt out of the minimum wage.
3. Going the other direction, it is interesting to consider a minimum wage that applied only to new hires and not to existing employment relationships. I think few people would be in favor of such a minimum wage. It is interesting to consider why.
Summing Up: Maybe there is a better way to lay things out: the objective is to separate out analytically the effect of the minimum wage on new hires from the effect of the minimum wage on existing workers.
Note: One can argue that telling someone shehe may not take a job a firm wants to give herhim will benefit other workers who do get jobs, but if that is the argument for a minimum wage, I would like to see it stated that baldly: “You must sacrifice and not take that job so that other workers can be paid more.”