Sunday, September 10, 2006

Minimum Wage Boondoggle

There has been a recent push for a raise in the minimum wage. It is no coincidence that this push has increased as re-election time is coming up. But the problem is that raising the minimum wage is not a solution, it actually would create more problems. What is a minimum wage law in the first place? It says "all jobs under wage X are illegal". It certainly doesn't create jobs, it illegalizes them. And the jobs that it illegalizes are the very jobs that marginal workers would have taken - and therefore the minimum wage illegalizes employment for the poor and unskilled workers.

Consider. Let us suppose that the minimum wage was $5.00 and it was raised to $6.00. What this would mean is that all jobs between those two wages is now illegal. You have not only raised the cost of labour, but you have illegalized the jobs that would have gone to the very people that the minimum wage is intended to help. It should be rather obvious that you have created unemployment for areas in which such wages would have been and were being payed - the poor.

You have effectively outlawed jobs for marginal workers, and this functions as an incentive for them to be on welfare. So, onto the welfare roll they go and they are kept in a relatively complacent state of poverty, with no incentive for employment. There is this relationship between welfare and the minimum wage - the more you increase the minimum wage, the more attractive employment becomes, but the less available employment there actually is. On the other side of the coin, if you increase the welfare rolls, the less attractive employment becomes, and thus people prefer to collect their welfare checks until the end of time.

A raise in the cost of labour inherently requires a raise in the cost of living. A minimum wage increase is a raise in the cost of labour, the cost that an employer must pay to employ someone. But what use is raising wages by 20% if it is met by an increase in the cost of living by 20%? The net effect is a zero-sum game at best. A minimum wage increase (I.E. raising the cost of labour) forces an employer to take two options: Lay people off or raise prices. But if the company raises prices, that means that less people buy their goods and services (they can't afford it!), and thus the employer takes a loss and has less capital to pay their employees with. And if the company lays people off, that means there is a shortage of labour. In either case, the more commonly chosen method is unemployment.

Some may counter that statistics showed that a raise in the minimum wage wasn't followed by massive unemployment. This is an erroneous arguement because the statistics aren't taking every factor into account - it simply means that there are other, more uplifting factors at work that cancelled out the negative effects. It means that the private sector has managed to produce enough jobs and other beneficial factors to minimize the damage done. Statistics of the overall economy cannot be used to prove something about one single factor within that economy.

Statistics do not tell me the individual factors, they can only show me the cumulative end result at best. You can show me the pie, but that does not reveal to me all of the individual factors that created the pie. As a pure hypothetical, lets assume that a minimum wage increase disemploys 10,000 people. Then lets say the free market within that same year produces 8,000 new jobs. Well, the end result of the pie tells us that "only" 2,000 jobs were lost, but that is misleading - it does not change the fact that 10,000 jobs were originally lost due to the wage increase, it's just that other factors minimized the effect. If in our hypothetical the minimum wage was never increased, there would have been a net gain of 8,000 jobs instead. It's as if I gave you 10 dollars and then took it back, and the statistics showed nothing - that doesn't change the fact that I originally gave you 10 dollars.

Furthermore, the minimum wage is never increased by a significant enough amount to create massive enough employment for the average person to notice - that is precisely what is stopping them from raising wages by large numbers. Why not raise the minimum wage to $15? $30? $100? Why not raise wages into the sky? If they raised wages by 2 whole dollars, or any such significant amount, the unemployment effect would be greatly noticable. This is why it is only meddled with in relatively small increments, like 15 cents. It functions to keep marginal workers down while providing a cozy income for union beuracrats.

There is another economic factor that makes any remote benefit from increased wages meaningless. That factor is monetary inflation, which is an increase in the money supply. This increase in the money supply lowers the purchasing power of the dollar, which in turn raises prices in the economy. You can raise wages, but the effect of inflation on the economy quickly cancels any gain out. There is no advantage in being payed an extra dollar per hour if the cost of housing, medical care, gas and various consumer goods perpetually rises exponentially along with it. Increases in the cost of living from monetary inflation completely negates any increase in prosperity.

Politicians pushing for wage increases are demogagueing the poor and middle class for votes, and to such people's own harm. The Democratic Party in particular has been basing itself off of pandering to these groups for decades, and have somehow managed to convince large numbers of people that they actually care for them, that the government can somehow actually hand them prosperity on a silver plate. But it is an illusion, emotional manipulation and politics as usual. The minimum wage is not an answer to economic problems, it is part of the problem itself.


DRS said...

The dumbest minimum wage increase occured in MI. They raised the minimum wage over $2.00 hr. for adults. The wage increase is alot smaller for teenagers. More jobs for teenagers. I suppose it only proves your point

Brainpolice said...
This comment has been removed by a blog administrator.
Brainpolice said...

(Don't know why it wont let you edit your comments...ugh).
A two dollar increase is quite an increase. There must have been quite an unemployment effect, no? However, as mentioned in my article, other uplifting factors within the economy tend to obscure the unemployment effect. Like if I give steal 10 dollars from you, but someone else gives you 9 dollars, the statistics would show that you lost 1 dollar, obscuring the fact that I stole 10 dollars from you initially.

DRS said...

it hasn't went into effect yet. They just voted on it. Seems strange they would want teenagers to have jobs before adults. They also screwed up the wording so that people that weren't able to get overtime (truckers) pay now can and I believe that all people get minimum wage even if they work on commission or tips.