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Source link: http://archive.mises.org/10454/inhumanity-of-the-minimum-wage/

Inhumanity of the Minimum Wage

August 13, 2009 by

Except for differences in detail, fixing a minimum wage by law has come to be a bipartisan project. That may indicate good politics — but it is no assurance that a minimum wage law will accomplish what is claimed for it. FULL ARTICLE

{ 23 comments }

Barry Loberfeld August 13, 2009 at 7:54 am
Richie August 13, 2009 at 9:38 am

Great. I can’t wait to read the comments on this one.

kensington and chelsea August 13, 2009 at 9:42 am

It is more of a class debate,. The wealthy think there is no need the poor thin there is.

kensington and chelsea August 13, 2009 at 9:43 am

It is more of a class debate,. The wealthy think there is no need the poor thin there is.

FarSide August 13, 2009 at 10:14 am

“I can’t wait to read the comments on this one.”

At the moment, I’d settle on the article itself. Is there a valid link to the story anywhere?

P.M.Lawrence August 13, 2009 at 10:17 am

Well, I count three going on four comments before this one – and nobody seems to have tried following that link. As I write this, it isn’t working. I think it was meant to lead here.

P.M.Lawrence August 13, 2009 at 10:19 am

Farside seems to have posted during the gap while I was typing and searching for the link.

Michael A. Clem August 13, 2009 at 10:40 am

It’s time to stop being soft on those who advocate the minimum wage in the misguided belief that it helps the marginally productive in our society, when, in fact, it is a direct attack on the marginally productive. Economic ignorance can be no good excuse.

Jonathan Finegold Catalán August 13, 2009 at 12:00 pm

It’s a pretty crude analysis, made for a ~1,000 word blog post, but it’s interesting to note that worker’s wages tended to increase in an era with no minimum wage and with a minimal safety net for the unemployed. The thought came up when I was responding to an article written by Gregory Clark, on how machinery was going to replace the human worker ( http://www.economicthought.net/2009/08/technology-machinery-and-the-human-laborer/ ).

He seems to agree, because he says that it was during the early 20th century that the worker’s real wage went up. But then he comes to the conclusion that we are doomed to high unemployment, and that more and more people will have to live on welfare. He then equates it to France, where he says the welfare state has provided the poor with suburban estates (I’m not sure if he’s being sarcastic… he seems pretty serious). He doesn’t recognize the lack of welfare safety nets during that era.

JamesD August 13, 2009 at 12:23 pm

It just occurred to me while reading this; that a minimum wage law can increase the workers effort to be above marginal productivity. This would seem to be a potentially good thing for everyone.

mikey August 13, 2009 at 12:41 pm

“It just occurred to me while reading this; that a minimum wage law can increase the workers effort to be above marginal productivity. This would seem to be a potentially good thing for everyone.”

I didn’t know I could acquire more valuable skills just by wanting to.

FarSide August 13, 2009 at 12:43 pm

JamesD –

Please explain.

I don’t see any evidence that a law setting a worker’s wage will give them more motivation to work than the employer freely choosing to set his wage.

If the employer thinks he will get enough productivity increase from a worker to offset the increase in wages, he will either do so and become stronger, or choose not to do so and become weaker, potentially to the point of going out of business.

The “American way” (or at least, how they tell us it was) used to along the lines of “hard work” = “climb the ladder”. If we stick people higher on the ladder to begin with, will they work hard after the fact? Maybe some would.

The idea that promoting someone will cause them to become worthy of the better job/pay seems (to put it mildly) backwards to me.

JamesD August 13, 2009 at 1:04 pm

FarSide,

It is backwards the way you state it.
I am not saying there is a promotion. I am saying there is a minimum productivity required with a minimum wage.
Assume an individual needs to have a job.
He can get a job with his existing skill set and work ethic.
But now a min wage is established or increased. If he was marginal before he will have to increase his productivity to get a job period.
That is where the incentive comes from.
The worker now has a choice work harder or don’t work.

Michael A. Clem August 13, 2009 at 1:14 pm

James, the point is that they have to work harder, or more creatively, to be more productive, but that’s assuming they can find a way to do that in a situation where they’re less likely to be hired in the first place, due to the minimum wage.
Whereas, without the minimum wage, a worker can be hired at a lower wage and then gain the skills and experience needed to become a more productive worker.
I just don’t see a silver lining to the minimum wage.

JamesD August 13, 2009 at 1:38 pm

I agree with you. I think your right. But I think this is a case of both/and not either/or.

Some will be motivated to work hard and gain skill and use their job to do this.
Others will be motivated to work hard just to have a job.
Depends on the individual and the situation.
Clearly a high enough min wage will devestate those with difficulty getting above marginal productivity and would be bad for everyone.
But, I still don’t see argument against the concept that a min wage would motivate marginal workers to work harder if they want a job.

Thinker August 13, 2009 at 8:07 pm

JamesD

Consider this: you are a business owner hiring new workers. There is a minimum wage law in place. You look at the pool of capital you have set aside for purchasing labor and find that you have exactly enough applicants to fill all of your available slots and a little bit less than the minimum wage left over. There is another applicant whose labor you do not think is worth the minimum wage, but is highly motivated. Do you hire him? Not unless you have some prescient insight and see a great future for him

Suppose that you had some slots open. You would hire whatever labor you needed, but what would be the incentive for overvalued laborers to produce any more, since they cannot suffer any loss in pay?

Suppose that you have more than the minimum wage left over after all the slots are filled. Will you hire the applicant? Depends, but there is not obvious reason to

The minimum wage hurts low-skill workers not just because it overvalues their labor, but also because it limits the number of employees that businesses can hire; after all, a business only has so much money it can afford to devote to labor.

The above all assumes that the applicant is looking for a minimum wage job.

Pat Miketinac August 13, 2009 at 8:36 pm

The minimum wage would probably not be an issue in a true free market, sound money economy. The Fed has caused a massive distortion with fiat money that is a far greater problem on the other end, creating an unsustainable economy. Why would anyone work for a wage that they could not survive on? The rest of us are now forced to make up the difference with taxes to support them.

Gil August 13, 2009 at 9:04 pm

Why would an employer act selflessly and hire more workers than needed but he can get them cheaper, Thinker? What happened to the Law of Diminishing Returns and ‘too many cooks spoil the broth’? An employer would only theoretically hire a worker because there’s work that needs to be done. Just as he would not hire a worker for more than he’s worth neither would he underpay a worker just so he’s can hire more. If workers were being paid less so poor Joe can have a job too would the others like it? Effectively Joe is on welfare paid for by the other workers.

If anything a highly-skilled hi-tech society would have less work available for unskilled labour (which obviously pays the least) as business operators only concern themselves with employees with high-end skills to keep up with the competition. For example, a middle class worker in a low-tech society would hire a maid to do his laundry so he doesn’t have to – but a similar middle class worker has access to washer-dryer machine that needs little attention as it is mostly automated and isn’t worth the bother of hiring someone.

Thinker August 13, 2009 at 10:16 pm

Gil

You seem to have driven my point home quite nicely.

As to why an employer would hire unnecessary workers-ask them, not me. All I can say is that there is not objective reason to hire workers you don’t need. This does not, of course, exclude any number of subjective reasons.

JamesD August 14, 2009 at 12:09 am

Thinker,

If the min wage is set too high it clearly causes damage to everyone but my comments to you are based on my concept that the min wage as I knew it a couple of years ago (Low). I make no judgement regarding the present rate. I agree that there are negative affects of a min wage but contend that there is a rate at which the positive effects outway the negative for a positive gain to most everyone.

Regarding your statement:
The minimum wage hurts low-skill workers not just because it overvalues their labor, but also because it limits the number of employees that businesses can hire; after all, a business only has so much money it can afford to devote to labor.

It does not overvalue their labor because if they can’t produce beyond what they are paid they will not be employed.
What I am saying is that it will increase the value of labor and I am saying increases the incentive of everyone to increase the productivity of labor. The maid vs washing machine is a great example of the market being forced to raise the productivity of labor thru automation. Also, the maid is insentivised to more productive work in say the appliance industry.
I am proposing that this could be good because people are not commodities they have the capacity to become more than what they were.

Gil August 14, 2009 at 12:12 am

“You seem to have driven my point home quite nicely.” – Thinker.

Really? You seem to use the standard line of ‘if labour is cheaper an employer will hire more of it’. My first line was supposed to been written:

“Why would an employer act selflessly and hire more workers than needed just becausehe can get them cheaper, Thinker?”

After all, are you willing to help solve the unemployment problem by taking a big pay cut so your employer can hire more workers?

BT August 14, 2009 at 11:06 am

James D:

Your argument(s) and analysis of minimum wage law is poor. Furthermore, you seem to not be real decisive on the issue. Re-analyze your position and then consider another post. Just a couple of questions/thoughts:

1) What rate do you think is correct for having positive effects outweigh negative effects?

2) How is there any way to determine this mysterious rate?

3) How does a random, government fiat, wage rate increase the “value of labor?” Please feel free to explain this. What is that even supposed to mean? I think your understanding of value is a little flawed, or I am inadvertently “toying with words.”

John T. August 20, 2009 at 5:02 pm

I own and operate a franchised sandwich shop in the Chicago area. The minimum wage hike in IL has cost me over $50,000 per year in additional wages–for nothing additional–same amount of work but costs me $50k more a year. My franchise requires a lot of man-hours compared to some of our competition. To start out think about that–because I employ a relatively large number of people I am at a disadvantage.

Now I know what you are thinking–you are rich and can afford it–I am not rich at all. We are struggling severely especially in this economic climate. Quite frankly my take-home is laughable considering the risks I’ve taken, the hours I work, and how good I am at my job–which is very good.

When the min. wage was $5.15 /hr we started people out at $6 /hr–that was considered good and at that time my full timers earned $12 /hr (or double the minimum wage). Now the min. wage is $8 /hr and guess what my full time people make now? $12 /hr–the same; however, prices everywhere around them have gone up. So not just the business owner gets squeezed folks. Believe me if I could increase the wage of my full timers I would. But the gov’t forced me to give raises to a bunch of 18-, 19-year-olds whom for most of them this is there first job and quite frankly they weren’t asking for a raise in the first place–I’ve never had a hard time hiring and retaining great part timers. But that guy/girl that stuck w/ the company for a couple years and began to climb up the ladder? Screw them! And they are getting screwed and most of them probably don’t know it.

On another note, $50,000 a year is a lot of money. Had I been able to retain those monies FY2007 would have been a good year and FY2008 wouldn’t have been a total nightmare. The point? That additional money could have enabled me to open up another location and grow my business or afford me a better chance at surviving this economic crisis. Either of which doesn’t result in lost jobs.

Now you say, “see the ‘rich’ are getting richer.” Well the idea in growing a business is usually to build wealth so generically speaking you’re correct. However, when I build these stores I am paying mostly union painters, carpenters, plumbers, architects, etc–all earn good livings. Also, 90% (believe it or not) of the equipment I purchase is manufactured in the US–and we buy a lot of equipment. Whats more, the truck driver that delivers our operating supplies once a week makes about $70,000/yr. Same with the supplier of our aprons, produce, and other services such as garbage, telecom, water, and power–all provide good or even great middle-class jobs.

My example is just one example. But imagine this happening on a macro-scale a million times over. RAISING THE MINIMUM WAGE NEGATIVELY IMPACTS THE MIDDLE CLASS FAR MORE THAN ANY GROUP. Overall, it is my belief that raising the minimum wage only benefits those who intend on staying on the minimum wage all of their lives.

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