On January 1, 2008 California’s minimum wage will increase once again, this time from 7.50 dollars per hour to 8.00 dollars per hour. According to the U.S. Department of Labor, that translates into a 6.7 percent increase, compared to a median wage increase of 4.4 percent for the Golden State. That is bad news for Californians and the state’s economy.

A minimum wage may sound like a good policy solution aimed at helping those, who earn the least. Evidence points to the contrary. Following the law of demand, an increase in the price of a product will result in a decreased demand for it and the labor market is no exception to that rule. If the government forces firms to pay more for the workforce they hire, employers will have three options.

First, they could replace less productive workers with more productive ones. That would offset higher costs with greater output. In this scenario, the poor lose, because they tend to be less educated and are the first to be replaced. Employment wouldn’t increase, but rather stay constant at best.

Another option for the employers is to outsource. In today's interconnected world this is fairly easy to do and many firms choose that alternative. They avoid an expensive workforce in the domestic market and hire cheaper labor, which can be found in other countries. Instead of being helped by the minimum wage, people subject to it lose their jobs and have an even greater problem finding a new one.

Finally, companies can choose to automate. By having fewer workers they avoid paying artificially high wages resulting from minimum wage increases. This becomes a good option when capital-intensive production becomes worth considering. Instead of helping, a minimum wage actually punishes the poorest by shrinking the supply of low paying jobs requiring low levels of training.

The study “Sense and Nonsense on the Minimum Wage” by Donald Deere, Kevin M. Murphy and Finis Welch, published by the Cato Institute, shows that every time a U.S. state raised the minimum wage, there was a decreased demand for labor. Youngest workers, who form a large portion of the low-income labor pool, were the most obvious victims.

Unfortunately neither party in the U.S. is consistent when it comes to minimum wages. The very idea of an imaginary safety line is appealing to all policy-makers. They fight for votes and try to convince everyone that their efforts make society better off. However, the issues at stake here are real and any mistakes result in real struggles that people have to face later on.

A survey published by the Journal of Economic Perspectives reports that nearly three-quarters of economists at America's top universities agree that a minimum wage increases unemployment among the young and unskilled. About one-third of economists agree right away, and another third agree with some reservations. Legislators in Sacramento should listen to experts instead of hobbling California’s economy, making finding a job harder, and resisting competitiveness that today’s world demands.