The Minimum Wage Is Zero: Why Markets Must Set Wages to Preserve Opportunity

Thomas Sowell famously observed, “The real minimum wage is zero.” This may sound provocative, but it captures a fundamental truth that policymakers too often overlook. When wages are set above the market rate by government fiat, the result is not higher earnings—it is often no job at all.

This article builds on my earlier piece, How Minimum Wage Laws Are Fast-Tracking Your Replacement by AI. In that article, I discussed how wage mandates distort incentives and accelerate automation. Here, I go deeper into Sowell’s insight and explain why minimum wage policies, however well-intentioned, often price the most vulnerable workers out of the economy entirely.

About the author: Jeff Hulett leads Personal Finance Reimagined, a decision-making and financial education platform. He teaches personal finance at James Madison University and provides personal finance seminars. Check out his book -- Making Choices, Making Money: Your Guide to Making Confident Financial Decisions.

Jeff is a career banker, data scientist, behavioral economist, and choice architect. Jeff has held banking and consulting leadership roles at Wells Fargo, Citibank, KPMG, and IBM.

Good Intentions, Poor Outcomes

Most minimum wage policies begin with a noble idea: help people afford a basic standard of living. Community leaders and legislators observe the cost of housing, transportation, healthcare, and food in their region. Then, they set a wage floor they believe can sustain a decent life.

The moral impulse is clear. Who would not want their neighbors to live with dignity?

But economic systems are not powered by intentions. They are driven by incentives. And when policy ignores the constraints faced by those who hire workers, it risks undermining the very people it aims to help.

What Minimum Wage Jobs Really Are

Minimum wage roles are often entry-level positions—manual labor, customer service, food prep, factory work. These are the jobs that form the first rung of the economic ladder. They offer a foothold for young people, immigrants, or individuals re-entering the workforce.

To understand how these jobs exist, consider the basic economic calculus of a business. A firm produces a good or service that sells at a market-determined price. To deliver that product, it must combine inputs: capital, raw materials, and labor. The total cost of these inputs cannot exceed the expected revenue. Otherwise, the business contracts or shuts down.

Wages are not set by what workers need. They are set by what firms can afford, based on the value those workers produce.

When the minimum wage rises above the value a worker can deliver, the outcome is predictable. That job disappears.

The Automation Incentive

In theory, a business could simply pay more. But in practice, that often is not viable. Entrepreneurs are not charities—they are stewards of capital who must deliver returns. When labor becomes too expensive, firms explore alternatives:

• Replace workers with machines

• Outsource production to lower-cost regions

• Eliminate the product or service altogether

The most likely and scalable substitute is automation. Advances in artificial intelligence, robotics, and machine learning increasingly offer efficient, cost-effective alternatives to human labor—particularly in routine, entry-level roles. From self-checkout kiosks to warehouse robots, businesses now have more compelling reasons than ever to automate when faced with rising wage floors.

And minimum wage laws make those alternatives increasingly attractive.

Behavioral Blind Spots

Why do so many people support minimum wage increases despite the evidence? Behavioral economics provides an answer. Humans are wired to focus on immediate outcomes. Politicians exploit this by promising wage hikes that feel good in the short term. The job losses and automation investments come later—quietly and invisibly.

As the 19th-century French economist Frédéric Bastiat warned, sound policy requires looking beyond immediate effects. His principle of the "seen and the unseen" applies directly here: we see the higher paycheck for workers who keep their jobs, but we fail to see the jobs never created, the opportunities quietly erased, and the long-term costs that remain hidden from view.

This short-term focus erodes the mindset necessary for long-term growth. It discourages workers from skill-building and gives the illusion that legislation can substitute for adaptation.

Let the Market Set the Floor

If we genuinely care about economic inclusion, especially for low-skill and early-career workers, we must restore the wage-setting process to the market. Market-based wages achieve four critical objectives:

1. Preserve entry-level employment: Allowing wages to adjust ensures that first-rung jobs remain accessible.

2. Encourage human hiring over machines: Lower labor costs tilt the balance toward training people rather than coding robots.

3. Promote skill-building and mobility: Workers who start low can grow, gaining experience and value over time.

4. Respect decentralized knowledge: Local businesses know their margins. They are better positioned than politicians to set pay sustainably.

This does not mean abandoning support for struggling workers. It means providing targeted, transition-oriented help—such as training programs, short-term benefits, and relocation assistance—without corrupting the core price signal of wages.

Sowell Was Right

When Sowell said “The real minimum wage is zero,” he was not making a cynical quip. He was warning us. If the price of labor exceeds what the market will bear, businesses will stop hiring. The worker earns nothing. The door never opens.

The first job, even at a modest wage, provides something priceless: purpose, experience, and momentum. When we eliminate that opportunity, we rob people of the chance to advance. And once automation replaces that role, it rarely returns.

Minimum wage laws are not simply economic errors. They are structural barriers to progress.

A Better Way Forward

To support the vulnerable, we must do more than legislate intentions. We must build policies that respect market signals and human dignity. That means letting wages reflect real value while equipping workers with the tools to rise.

Protect opportunity, not illusions. Let wages move. Let skills grow. Let markets work.

Because the real minimum wage—still and always—is zero.

Resources for the Curious

Sowell, Thomas. Basic Economics. Basic Books, 2014.Clarifies how price floors—like minimum wage laws—often produce outcomes opposite to their intentions, especially for low-skilled workers priced out of employment.

Hayek, F.A. “The Use of Knowledge in Society.” American Economic Review, 1945.Explains why decentralized decision-making outperforms central planning, particularly in wage setting, due to dispersed and local knowledge embedded in market participants.

Bastiat, Frédéric. That Which Is Seen, and That Which Is Not Seen. 1850.Highlights the importance of analyzing both visible and hidden consequences of policy—applicable to minimum wage laws that obscure long-term harms like automation-driven displacement.

Acemoglu, Daron, and Restrepo, Pascual. “Robots and Jobs.” Journal of Political Economy, 2020.Provides empirical evidence that rising labor costs accelerate the adoption of automation, disproportionately impacting lower-skilled and routine task workers.

Mankiw, N. Gregory. Principles of Economics. Cengage Learning.Introduces foundational concepts of labor market equilibrium, wage elasticity, and how government intervention distorts efficient market outcomes.

Thaler, Richard H., and Sunstein, Cass R. Nudge. Penguin Books, 2009.Explores how cognitive biases shape public policy and personal decision-making, often leading to well-meaning but counterproductive labor interventions.

Hulett, Jeff. “The Hidden Wealth of Time: Turning Challenges into Opportunity.” Personal Finance Reimagined, January 9, 2025.Illustrates how low-wage jobs can act as foundational steps on the economic ladder, using a behavioral lens to emphasize skill-building and growth over static wage levels.

Autor, David H. “Work of the Past, Work of the Future.” American Economic Association, 2019.Examines how job polarization and technology have reshaped the labor market, creating a greater need for flexible, adaptive wage-setting in a changing economy.

Boudreaux, Donald J. “Minimum Wages, Maximum Ignorance.” Foundation for Economic Education, 2016.Offers a practical economic critique of minimum wage laws, emphasizing how intentions often overshadow consequences in public discourse.

Brynjolfsson, Erik, and McAfee, Andrew. The Second Machine Age. W.W. Norton & Company, 2014.Provides context on how digital technologies, including AI, reshape labor markets and why policy must evolve to accommodate these shifts without distorting wage signals.