The minimum wage is a wonderful example of how good intentions can go awry with perverse results. I have recently been party to several discussions illustrating how and why this is true.

One illustration comes from a judge who told me a sad story involving one of his clerks. Most law school graduates leave with significant debt, often in the low six figures, and clerks earn less than $50,000 per year. This clerk had two young children and a spouse in college. Clearly, they were on a tight budget.

The couple learned of a woman in their church who was looking for part time work. They offered her an opportunity to come to their home and care for their children (no housework) for $4.75 per hour. The woman agreed and all were pleased.

Alas, a friend told the caretaker that in their state people must be paid a minimum of $6.00 per hour. She relayed this to the family and they paid the back shortage—and then had to let her go. They simply could not afford more. The caretaker cried and said she really liked her job and enjoyed the children. This is an example of the law of demand at work, i.e., when things get more expensive, people consume less. Game over.

Here’s another situation; one I know happens frequently. An old farmer near Gateway has a friend, let’s call him Hank, who he likes and trusts. Hank knows the farmer always needs casual labor for simple tasks: moving irrigation pipe, cleaning machinery, picking up, and so forth.

Hank told the farmer he knew a junior high student, Bill, who needed work. Not only did he need the money, more importantly, Bill needed the experience of working and taking on responsibility for even simple tasks.

Knowing the importance of showing up on time, doing what is required, reporting truthfully, and taking direction are extremely important, indeed essential qualities, for success in life. Readers of this column may take these qualities for granted, but many kids, including Bill, have not yet developed these attributes and need to learn them. Low wage jobs offer them this opportunity.

The farmer met, liked, and agreed to hire Bill. According to the farmer, in an honest accounting, when Bill showed up he was worth a negative wage, i.e., Bill should have paid the farmer for the opportunity to work. Here’s why.

First, Bill lost, broke, misplaced, and neglected tools. Next, he needed near constant direction and supervision. He could not be assigned a simple task and left alone to do it. As a manager, the farmer was worth about $30.00 per hour, and he spent 20 minutes of each hour monitoring and checking on Bill. Thus, hiring Bill cost the farmer about $10.00 per hour in lost opportunities. This is in addition to the slightly more than minimum wage the farmer paid.

However, by summer’s end, the farmer reported that Bill had acquired enough skills to be worth his wage. And the farmer was glad to help develop a worthy lad.

I’ve heard other, far more horrific accounts: a green employee who ran raw gas rather than the proper mix in a two-cycle engine and totaled a $600 machine, one who turned on an irrigation pump with no water in the ditch and ruined an expensive pump, and one who ran a riding mower through rock and brush. The list goes endlessly on and on.

Unless sentiment intervenes, as with our Gateway farmer, people are not paid more than the value of what they produce. (Ideally they are paid the value of their marginal product.) Working develops skills that increase a person’s value to others. Until one develops the human capital sufficient to be worth the minimum wage, they simply are not hired.

The law clerk lacked the financial buffer to pay the caretaker. The old farmer saw an opportunity to help a promising young man and paid to do so. Had he been financially rational, he wouldn’t have done so. The minimum wage effectively distorts the labor market. It causes employers to hire fewer employees and substitute capital for labor. This is the relentless logic of minimum wage laws. And, of course, the poor suffer most.