The economics: a worker tends to earn his discounted marginal productivity in a 'package' of wages and conditions in lieu of wages. The worker's marginal productivity is the income that the employer gains from the employment of this additional worker. The income to the worker is discounted by the natural rate of interest because the worker gets his wages today whereas the employer reaps her profits in the future. By 'tend to', I mean that
- if the worker is paid above his discounted marginal productivity, the worker is a net loss for the employer: she can fire him and by this reap a profit; and that
- if the worker is paid below his discounted marginal productivity, a competing employer can bid him away with higher wages.
The 'package' concept acknowledges that weekly wages are only a part of an employer's expenditure on labor, and that it is this total expenditure that tends towards discounted marginal productivity. In a free market the composition of this package is ultimately set by the preferences of workers; in the American market we have things like "the employer's contribution" of social security, which is of course an obscured second tax upon the worker.
Minimum wage: a politician declares illegal all jobs of a wage less than some figure. Where this figure is below a given wage, the law of course has no overt effect. Where the figure is above a wage but below the full 'package' of compensation, and where the composition of the package is not constrained by other laws, the law may raise wages at the expense of conditions that the workers tended to prefer. Where the figure is above even the package, where it requires a discounted marginal productivity that a worker does not offer, the law may disemploy workers. I'll get back to this last condition.
Employer power: a minimum wage advocate may agree with all of the above, and still say: wait a minute, this 'tendency' about wages is only a tendency, and we find markets with very many employees and very few employers. These employers enjoy a "buyer's market" in labor, then, and their competition for labor can cease far short of the discounted marginal productivity that wages merely tend towards. A minimum wage law, then, can simply effect the 'tendency' upward through force of law, raising wages without impairing conditions and without disemployment.
(Of course, real-world minimum wage advocates will simply dismiss the above as 'theoretical' and oppose their empirical studies which show that a minimum wage law was enacted and that wages thereafter rose or that people were not thereafter disemployed. I am not interested in these charlatans. I am interested in the person who worries about employer power.)
Employers may enjoy a "buyer's market" in labor, I do not deny that this is possible and would not care to deny that it was so in a given industry. But even in a buyer's market, all actors -- employers and employees -- come together voluntarily, and an employee by accepting employment demonstrates that this is to him preferable to not being employed or to seeking employment elsewhere. Likewise for the employer: in a voluntary exchange both parties benefit ex ante, or they wouldn't do it. A buyer's market is not illegitimate: if it were observed that more teenage boys than teenage girls seek sex, giving teenage girls a buyer's market in these terms, nobody would advocate that this imbalance be corrected by political fiat. When it is observed that more unmarried women than unmarried men prevail in a society, politicians likewise do not begin rumbling about mandatory marriages between women or mandatory polygamy or somesuch.
But here is where I turn the power worries on their head: do minimum wage laws come to the defense of very many employees who are faced with very few employers? What about people who do not want to work very hard? Wal-Mart greeters, say, or a teenager who merely wants to support a WoW habit. If a number of employers can only bother with buying the services of a few highly-productive workers, a competitor may still hire many WoW-habit teenagers who put in seven hours a week and then hurry home. A minimum wage law can prevent this sort of competition, prevent mere WoW-habit work, and -- by making disemployment the only legal alternative -- add economic power to the manager who calls his employees together and says, listen, y'all're gonna need to work triple hours from now on, hear?