Kudos to the Center for Freedom and Prosperity Foundation for a brilliant and hard-hitting short video demolishing the perennial economic fallacy that minimum wage laws benefit low-skilled workers. It is perfect for introducing the topic to a Principles of Economics class.
Source link: http://archive.mises.org/12965/the-job-killing-impact-of-minimum-wage-laws/
The Job-Killing Impact of Minimum Wage Laws
Previous post: FTC Chair Denies He’s a Socialist, Announces Greater Role in Healthcare
Next post: Boycott BP?
{ 25 comments }
I think the video is good for those at the margins, but not so much for others.
The problem with the ad absurdum argument at the end of the video is that most of those (going by the people visiting here who agree with minimum wage) here don’t disagree with the core principle, that an extremely large increase in the minimum wage will cause unemployment. Their disagreement is whether relatively small increases result in unemployment.
The statistics graphic provided in the video is good, but there are some other graphics that are an overlay over longer periods of time that don’t provide the clear change, such as http://wallstreetpit.com/wp-content/uploads/2009/07/image0160.png
It can be explained easily enough that there are various problems with this kind of a chart since there are many other variables that hide the effects of the minimum wage changes, but this prevents an empirical proof like some would look for here.
I think the core a priori arguments made at the beginning are sound. The unfortunate problem is it’s not acceptable to non-Austrians. Their argument has been that business is paying less than it should out of stupidity or even malice (that it’s calculations aren’t including details like lower wages possibly cause business to get workers more likely to steal, etc.)
Obviously, that argument assumes they know better than everyone else (they never really explain how they know exactly which wage is perfect and not too high or low), which is pretty haughty, but isn’t something you can really argue with using this kind of video.
If you want to stay sane, do not read the youtube comments.
Also a good rule to follow in general.
do people really believe the economic fallacy that minimum wage laws benefit low income earners?
is it a fake fallacy just meant to make belive they believe it??
i have read that approximately 3 percent or so of hourly employees make the minimum. i dont know if salaried low wage makes much of a difference in the percentage of employees making minimum. heads of household may be an even smaller portion of the 3 percent or so.
now if i could ride seattle ferries for 5 hours a day and get paid 5 perhour to sit there and sanitize a doorknob now and then lessenign sickness in the city and increasing productivity that might not be so bad.
noone wants to see suffering but it seems an overall small economic impact.
“is it a fake fallacy just meant to make belive[sic] they believe it??” Please clarify.
Matthew Swaringen — well said.
“…demolishing the perennial economic fallacy that minimum wage laws benefit low-skilled workers” has never been accomplished with the general American public or media. Videos and rational discourse have not worked.
The object of this demolition seems indestructible in the popular & political mind.
Perhaps some other approach might work {??}
You might want to watch Stossel show last week on Milton Friedman. He had some economist on to argue against Friedman’s ideas, and he brought up the how wonderful minimum wage is and how is unfair and mean to try to work for less then minimum wage (spouting about ‘social justice’ and ‘living wage’).
My favorite part was when a teenage girl from the audience asked why she shouldnt be allowed to take a job paying less than minimum wage if she was perfectly willing to do so…and his guest blatently dodged the question…
I wish I could find a video of it…It was pure brilliance.
Here’s the video.
PS. Thankyou Lew for bringing us these little rays of hope
Ah yes thats it thanks.
It’s amazes me that a 14 year old girl understand basic economics better than a professional economist…
The reason why we can’t have exceptions to the minimum wage laws is that to allow them would be to defeat the law. If the girl in question could simply sign a paper saying she waived her right to earn the minimum, every low-wage employer would make their employees sign such waivers– as a condition of being accepted for work.
But I’m sure it made good television.
You fail to state why this is a bad thing – why the law shouldn’t be undermined as you mentioned. Why should the government fix a price higher than what both buyer and seller quite willingly accept?
“Defeat the law” sounds so scary when it’s said that way, but it’s really pretty innocuous. This is people doing what they want to do, and if they might steal because they are “forced” to take a less than “living wage” the businessman should appropriately determine the risk and pay accordingly.
I haven’t seen any explanation how any government official knows the perfect “living wage” or why individuals on the wage can’t seek alternative employment or appropriate living arrangements (many people living together, etc.) to properly handle the lower amount.
The 14 year old girl here is a case in point. She doesn’t have a job and now she is left unemployed. Yet for some reason we have to get a government statistic of unemployment to invalidate their own imposed minimum wage policy so you’ll say that people being free to make their own choices is OK.
The reason why we can’t have exceptions to the minimum wage laws is that to allow them would be to defeat the law. If the girl in question could simply sign a paper saying she waived her right to earn the minimum, every low-wage employer would make their employees sign such waivers– as a condition of being accepted for work.
More likely the government would make exceptions for teenagers or minorities than simply allowing people to sign a waiver…but really the point is we dont need minimum wage laws at all…
We here in Australia had a recent, well-publicised, case of school kids loosing their jobs because the central government in Canberra declared that they had to be employed for three hours, not two! Two hours (per day, or per week; I’m not sure, and it doesn’t matter to the argument) was agreed between them and the small businesses eager to hire them- however, they couldn’t afford to hire them for the extra mandatory hour, and couldn’t afford to raise their rates so that they’d get three hours wages for two hours work. We have a Labor government in power, but if we’d had Liberals in (our business party), this might not have happened. (Despite all this the Australian economy is doing well, thanks to the mining boom- so you won’t be surprised to learn that Canberra is trying to kill that off with a mining ‘super-profits’ tax!)
the labor party and the unionocracy see children as dangerous competition for their due-paying members. i wouldn’t be too sanguine about the australian economy either. http://blog.mises.org/12953/housing-bubble-down-under/
Minimum Wage Laws Violate Human Rights And Property Rights.
Minimum Wage Laws are exploitative. They exploit the human rights of productive individuals in favor of non-productive individuals. They exploit the property rights of productive individuals in favor of the parasitic and predatory class.
The market always bids wages up for productive individuals as part of the competition for productive individuals.
The key understanding that needs to be recognized is that there has to be freedom of entry into the labor market. Lack of free entry into the labor market is a violation of human rights. Once there is free entry into the labor market goods and services will become less expensive, more plentiful, innovation will accelerate, and everyone’s standard of living will increase.
Those who claim that minimum wage laws serve social justice are wolves in sheep clothing.
“The market always bids wages up for productive individuals as part of the competition for productive individuals.”
Au contraire! In the free markets, wages fluctuate relative to supply and demand. If the free market causes wages to only go up then there’s no need to complain about minimum wages. In reality a sector that commands high wages should attract competitors who in turn bring the wages down and make rare productive skills into common productive skills. If anything the free market lower wages and creates job destruction which in turn frees up people to explore new and more productive skills. If anything it’s unions that keep wages high and jobs from being lost which in turn risk economic statis or even stagnation, i.e. products are expensive and low quality for decades on end.
“bids wages up for productive individuals”
This point must have been missed. In the market those who are productive will be rewarded by a higher wage rate being offered because they are being competitively sought after.
“In reality a sector that commands high wages should attract competitors who in turn bring the wages down and make rare productive skills into common productive skills”
Gil, in “reality” individuals are individual and have their own desires, motivations, and talents. There are “rare productive skills” for a reason.
These individuals know they are rare, know they are talented, and know they are productive, so they expect higher returns. I suppose some people may be cheated because they don’t believe they are worth as much as they are, but that is up to them to decide and not to you.
So? The I.T. business operated according to free market principles: in the 90s when I.T.-skilled people were few and far between then there was big money to be made. Nowadays I.T. skills are nowhere as valuable and a lot of I.T. work is done in India.
Do you know what that has done to wages in India?
* roll eyes *
Why eye rolling, Gil?
The profusion of lower cost IT professionals has enabled the vast increase in the availability and quality of IT… higher quality at a lower price, exactly what one expects from a free market.
You obviously are not in the software industry.
I work in IT, the field hasn’t all gone to India for a reason. All “rare skills” as you put it earlier are not easily replaceable. The issue is that there were some people who had limited skills here in America who lost to those of equal skill abroad due to their labor cost (wage) being too high.
And I suppose you don’t care about Indian’s at all. I suppose it doesn’t matter if they get a job…
Comments on this entry are closed.