How Minimum Wage Laws Are Fast-Tracking Your Replacement by AI

When the government sets wages instead of markets, businesses slow hiring workers—and start building machines to replace them.

By Jeff Hulett

At first glance, minimum wage laws seem noble—an effort to guarantee a "living wage" for all workers. But look closer, and the unintended consequences reveal a far different story. Like so many government interventions, price controls on labor ignore basic economic realities, distort incentives, and ultimately harm the very people they intend to help.

The Market Knows Best

First, let’s clarify what the market actually is. It is not some ruthless individual intelligence operating in a vacuum. The market is simply us—an aggregation of the intelligences, understandings, fears, desires, and diverse preferences of countless ordinary people. It is a system where individual decisions are continuously synthesized into powerful signals—like price and quantity—for each resource, including labor. A wage is not a random number; it emerges from this decentralized process, reflecting real conditions at a particular moment in time.

At the heart of any healthy economy is decentralized decision-making. Employers and employees negotiate terms based on supply, demand, skills, and needs. The resulting wage is not arbitrary—it reflects the true value that each worker brings to the marketplace at a given time.

As F.A. Hayek warned, centralized economic interventions cannot replicate the distributed knowledge embedded in millions of individual decisions. Wage-setting by fiat ignores this decentralized wisdom, replacing it with the blunt instrument of politics.

Sowell’s Reminder: Intentions vs. Outcomes

Thomas Sowell has long emphasized that one of the great tragedies of public policy is focusing on intentions rather than outcomes. The minimum wage intends to lift workers up—but the outcome is often their displacement.

Here is the brutal reality: businesses respond to cost increases rationally. When the government raises the cost of low-skilled labor above its market value, businesses find alternatives. Historically, that meant substituting cheaper labor, offshoring, or reducing hiring. Today, the new substitute is even more efficient and unforgiving: automation and artificial intelligence.

Behavioral Economics and the Illusion of Security

Behavioral economics teaches us that people are prone to short-term thinking. Politicians capitalize on this bias, selling minimum wage hikes as a quick solution to inequality. Workers, desperate for higher pay, understandably support it. But little thought is given to the second-order effects.

Raising the minimum wage does not guarantee that jobs at that wage will continue to exist. No real "minimum wage" law can force companies to hire workers at an uncompetitive rate. Instead, companies invest in machines, kiosks, software—and workers are pushed out entirely.

Ironically, the promise of protection becomes the reality of unemployment.

Automation Is Not the Villain

Many people blame technology for job losses, but that gets the causality backward. Automation is not a greedy force replacing humans for sport—it is a rational response to distorted incentives.

When the true market-clearing wage for an entry-level job is, say, $8 an hour, but the law requires $15, a business has two choices:

• Operate at a loss (unsustainable)

• Replace workers with automation (economically rational)

We can see this dynamic clearly when we consider the story of the garbage picker shared in The Hidden Wealth of Time on Personal Finance Reimagined. In that story, a worker at the margins of the economy seizes the opportunity for meaningful employment—tidying up after university events—despite starting at a low wage. That first job, though modest, creates the essential first rung on the economic ladder, allowing skills, confidence, and economic value to build over time.

But what if a minimum wage law had forbidden that job because the market pay was too low? The employer would not have simply paid more—they likely would have invested in automated sorting machines to replace human labor altogether. The opportunity—the critical first step—would have been lost before it even existed.

Imagine if a real minimum wage law actually guaranteed a job at $15 an hour. It would require not just a wage mandate but a matching mandate that businesses continue hiring under uncompetitive conditions—an economic impossibility.

As Thomas Sowell put it simply:

"The real minimum wage is zero." That is the wage earned when someone is priced out of the market entirely.

Personal Responsibility and Adaptation

Personal responsibility means facing reality, not just wishing it away through legislation. Workers must recognize that marketable skills—not government edicts—are the true path to higher wages and economic security.

Behavioral economics also shows that incentives matter. When society signals that success comes from political lobbying rather than personal adaptation, it undermines the growth mindset essential for human flourishing. Instead of encouraging skill-building and entrepreneurship, minimum wage laws create false security and stifle ambition.

Let the Market Set Wages

If we truly want more jobs—especially for the least experienced, least advantaged workers—the solution is not more laws but more freedom.

Allowing wages to adjust naturally accomplishes several important things:

• It keeps more people employed, gaining skills and experience.

• It encourages businesses to hire and train rather than automate.

• It preserves decentralized decision-making, respecting the complexity of local labor markets.

• It restores the dignity of work by keeping opportunities open to all skill levels.

Wages are not just a number—they are an essential economic information signal. A wage captures the decentralized wisdom of countless employers, managers, and workers across industries and regions. When prices like wages are allowed to fluctuate freely, they communicate critical information about supply, demand, skills, and value in the economy.

The government would better serve workers not by distorting this vital signal, but by helping individuals adapt to changing market conditions. Short-term unemployment benefits, targeted skill training, and transition support can empower workers to find new opportunities—without corrupting the price signal or reducing the availability of jobs.

Yes, some jobs may pay low wages initially. But they provide a starting point. As Sowell reminds us, "Most people who earn minimum wage are not trapped there indefinitely." In a free market, workers move up through merit, experience, and productivity. Protecting the market’s natural ability to signal and adapt is essential for preserving economic opportunity, human dignity, and long-term prosperity.

Conclusion: Good Intentions Are Not Enough

Minimum wage advocates often celebrate the visible—higher pay for those who keep their jobs—but ignore the invisible costs borne by those who never get hired at all. The tragedy is not just wage inflation; it is the lost opportunities that no headline captures: jobs quietly automated, businesses choosing machines over people, and careers that never start.

The real damage of minimum wage laws lies in the opportunities we never see—because they are priced out of existence before they are born. Protecting workers does not mean setting arbitrary wage floors. It means protecting the market’s ability to connect willing workers with willing employers, at every skill level, before opportunity is lost forever. Frédéric Bastiat warned:

"It almost always happens that when the immediate consequence is favorable, the ultimate consequences are fatal."

In economics, the essential discipline is to ask not just "what happens now?", but "and then what?" It is easy to mandate a higher wage; it is much harder to see the jobs that disappear, the doors that quietly close, and the futures that are never written.

Automation and AI will continue to advance. The question is whether our policies will hasten unnecessary displacement—or allow individuals and markets to adapt freely, creatively, and responsibly.

If we truly believe in opportunity, personal responsibility, and human dignity, we must let the market set wage rates. Anything else risks unintended harm, limiting opportunity and eroding the foundations of a thriving economy.

Resource for the Curious

• Sowell, Thomas. Basic Economics. Basic Books, 2014. Clarifies how minimum wage laws often harm the very workers they aim to help by pricing them out of the market.

• Hayek, F.A. "The Use of Knowledge in Society." American Economic Review, 1945. Explains why decentralized markets outperform central planning in setting wages and allocating labor efficiently.

• Mankiw, N. Gregory. Principles of Economics. Cengage Learning. Provides foundational insight on market-clearing wages, labor demand elasticity, and unintended consequences of price floors.

• Acemoglu, Daron, and Restrepo, Pascual. "Robots and Jobs." Journal of Political Economy, 2020. Offers empirical evidence that automation increases significantly where low-skilled labor costs rise.

• Thaler, Richard H., and Sunstein, Cass R. Nudge. Penguin Books, 2009. Explores how behavioral biases lead to well-intentioned but counterproductive policy decisions like mandated wage floors.

• Hulett, Jeff. "The Hidden Wealth of Time: Turning Challenges into Opportunity." Personal Finance Reimagined, January 9, 2025. Shows how adopting a growth mindset transforms time into an investment tool and illustrates, through the story of a garbage picker, how even the lowest-wage jobs can create pathways to opportunity and upward mobility.

• Bastiat, Frédéric. That Which Is Seen, and That Which Is Not Seen. 1850. Explains how good policy must account not just for visible effects but also for hidden, unintended consequences like lost jobs and missed opportunities.