The New York Times reports: “Democratic presidential candidate John Kerry on Friday proposed raising the federal minimum wage to $7 an hour by 2007, which he contended would benefit working women more than any other group.” It is moments like this that make me wonder why economists even bother. It would be as if mathematicians impotently watched in horror, year after year, decade after decade, as prominent community leaders talked about 2 + 2 being equal to 5. (And who is this Eileen Appelbaum, economist at Rutgers, who endorses the proposal?! In a sane world, she would be fired for incompetence.)
Source link: http://archive.mises.org/2151/kerry-proposes-raising-minimum-wage/
Kerry Proposes Raising Minimum Wage
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“It would be as if mathematicians impotently watched in horror, year after year, decade after decade, as prominent community leaders talked about 2 + 2 being equal to 5″
It’s worse than that. There would have to be mathematicians who actively convince people that 2+2 indeed equals 5, using bogus studies and regression models which ignore contrary evidence, for the analogy to hold.
Proof that 2 = 0
2x + 3x^2 + 3 = 0 + 3 + 3x^2
2x + 3x^2 + 3 – 3 = 0 + 3 – 3 + 3x^2
2x + 3x^2 = 0 + 3x^2
2x + 3x^2 – 3x^2 = 0 + 3x^2 – 3x^2
2x = 0
2x/x = 0/x
thus…
2 = 0
In the same way, if we had no minimum wage today, we institute a minimum wage of $0.01 per hour, and no-one (or almost no-one) would become unemployed. Thus, minimum wage really doesn’t cause unemployment. We can raise the minimum wage to $10,000 per hour, and just as many people will be employed as were before!
PS: My current salary is $13 / hour. It is interesting that Kerry’s proposal would make minimum wage half of what I make right now. I’m a lab technician in an immunology lab; obtaining that position required a BS in Molecular Biology. So, the least skilled individuals out there will need about half of the skills I have to get a job; or about 2 years of college. So much for minimum wage “helping” the less fortunate.
I’m not really sure what David is talking about in his argument about the skills in a job. All I have is a BS, and I’m making $80,000 a year. So if you’re making only $13/hr, then you must be 1/3 as qualified as me? That doesn’t make any sense at all.
Anyway, hasn’t it been shown over and over again that the minimum wage leads to lower wages because of illigal work contracts? I think all politicians should be made to take economics courses so they don’t make these terrific blunders.
But this is most likely just a political ploy meant to get votes, because the common man hasn’t take any economics courses either.
I wonder what Kerry would say if a reporter asked him if a $15 an hour minimum wage would be even better? Clearly, it’s better for an employee to be making $15 an hour than $7 an hour. So why not make it $15, or even $20? Who wouldn’t rather make $20 an hour rather than $15. I wonder why reporters don’t ask such questions?
Actually, I’m just kidding. I know perfectly well why they don’t ask.
Marxism is one heck of a beast. It feeds on ignorance, and unfortunately there is plenty of that to go around.
On top of why no journalists ask wouldn’t $15 or $20 per hour be better, why don’t they ask when the price controls are going to be implemented to make the bump in minimum efficacious over the relative long term? Why don’t the advocates (such as Kerry) who trumpet an increase also lay out a Federally controlled pricing system so that the raise will actually have an effect? Kerry’s rhetoric is so plainly disingenuous, he must know that it will only lead to inflation (without controls – discuss negative effects of such controls elsewhere) negating the effects of the raise (mid/long term). The fact that this isn’t exposed as chicanery at once simply shows the media’s ignorance or complicity.
If it wasn’t clear, I was being sardonic in my above post.
Brad,
Raising the minimum wage is not inflationary. In order for there to be a general rise in prices (if that’s what you mean by inflation), either all commodities other than money must decrease in quantity or the quantity of money must increase. Setting a minimum price for labor will only result in a lower demand for labor.
Think about it. If the price for everything were to double overnight, there would also have to be twice the quantity of money available to pay all those higher prices.
People have said for ages that raising the minimum wage would cause catastrophic disaster.
And every time it’s been raised, it’s never resulted in said disaster.
C’mon. Get over it.
Lion: Who said anything about disaster?? Minimum wage laws only create unemployment amongst the lowest wage earners. Actually, for someone who can only make $3.00 an hour, this is disaster because instead of being able to make something they will make nothing.
Then after unemployment goes up all the politicians will launch “anti-poverty” programs. As Mises said: interventionism breeds more interventionism.
Let’s not forget the people who really benefit from a minimum wage increases: Politicians who receive additional tax revenue they can throw away on more pork.
I think the real shame of the minimum wage is that it diverts attention from the question that all people must ask themsevles: How can I increase my market value?
If there is no minimum wage, persons earning very little money have an incentive to find a better job, or develop better skills.
With a minimum wage, that stimulus is removed.
Lion Kimbro should have read Peter White’s post.
Minimum wage laws make exactly the same sense as ethnic cleansing, by eliminating a segment of the population deemed undesirable by those in power.
The double-edged attribute of it is hinted by several of the comments here, with politicoes able to both say they have “done something” about poverty by eliminating the undesirable cheap labor, while at the same time creating a larger pool of impoverished victims to accept their welfare handouts.
Yes, Mises was right about intervention. Every regulation requires yet more regulations to try to patch the damage, which then require multiple regulations for every prior regulation, and leviathan grows.
Mr. Kimbro,
Straw men are easy to knock down. As Steven Kane writes, for the person who is unable to produce enough to justify the minimum wage, the law is a didaster, because he cannot find employment. Let’s be very clear about something. A minimum wage law makes it illegal for person A to pay person B an hourly rate less than that specified by the law. Paying person B less results in criminal penalties against person A. Person A can be put in jail, all because he and person B agreed to an exchange of labor and money that the state disapproves of.
So, when the state sets a minimum wage, lots of people cannot find work, since most people who would like to hire them, won’t, out of fear of being punished by the state. The state doesn’t require, as a part of these laws, that person A hire person B anyway. It’s not as though person B can walk up to person A and insist on getting a job, at the minimum wage rate. Not at all. Once the minimum wage is set, anyone (B) who cannot produce enough to make it worth while for anyone else (A) to hire him, will not be hired at all.
If that’s not a disaster for person B, I don’t knnow what is. For person A however, it’s unlikely to be a disaster. All it means is he doesn’t get his windows washed as often, or the grass doesn’t get mowed once a week, perhaps only once every other week, since he has to pay more per hour than window washing is worth, or grass mowing is worth, given how dirty windows can get, or grass can grow in a week.
So the wealthy and productive have very little to lose by supporting minimum wage laws. The laws don’t affect us directly in a way that makes our lives unbearable. We get to pretend how much we care about “the little people”, by supporting these despicable laws. It’s the less intelligent, the disabled, the elderly and the young who suffer as a result of minimum wage laws.
Brad,
I don’t see how a minimum wage law increases tax revenue. Total wages do not rise as a result of these laws. They cannot rise. The minimum wage laws don’t create more dollars to pay the wages with. Therefore there are not any more total dollars paid, and no increase in taxation.
It’s certainly true that back in the 1970s, there were several increases in the US minimum wage. And it’s true that total wages did rise. But the money supply, and dollar prices for commodities was risiing dramatically during that time. The higher dollar denominated wages during that period were the result of inflation of the money supply, not higher minimum wages.
thank you for your comments here Mr.White. I agree with you on this subject and probably most but just not all.
Lets not forget that rasing the min wage only encourages those to get around that law by working off the books by doing a job for somebody and then getting paid in cash.
R.O.,
Since there are really only two reasons for keeping books; paying shareholders in a corporation their due, and the requirements of the criminal enterprise known as The State to pay taxes, I’m not at all inclined to think that paying cash for service and keeping it off the books is a bad thing. If one can avoid being a victim of theft, whether by a common street criminal or the most sophisticated organized crime syndicate in any geographical location, namely, The State, why wouldn’t one, unless the risks outweigh the benefits? But surely it’s an entirely practical question, hardly a moral one.
Unsurprisingly, Eileen Applebaum is not an economist.
She works at Rutgers’ School of Management and Labor Relations.
Unfortunately Eileen Applebaum is an economist. At least according to the website at Rutgers:
“Dr. Appelbaum received her Ph.D. in economics from the University of Pennsylvania.”
http://www.rci.rutgers.edu/~cww/
“Setting a minimum price for labor will only result in a lower demand for labor.”
This statement by Peter seems to claim that price determines demand. It is an inversal of the truth. Setting a minimum price for labour may result in fewer occurrences of labour price being within the valuation of labour by a potential employer.
R.O.,
Since there are really only two reasons for keeping books; paying shareholders in a corporation their due, and the requirements of the criminal enterprise known as The State to pay taxes, I’m not at all inclined to think that paying cash for service and keeping it off the books is a bad thing. If one can avoid being a victim of theft, whether by a common street criminal or the most sophisticated organized crime syndicate in any geographical location, namely, The State, why wouldn’t one, unless the risks outweigh the benefits? But surely it’s an entirely practical question, hardly a moral one.
As a CPA I’d take exception to the idea that there are only two reasons to keep a set of books. While I detest to regulatory necessities to keep books, and there certainly is a need to know the portion of assets due equity holders and creditors, maintaining a set of books is essential to running a business soundly. Without books, and historical data, it is impossible to forecast and measure against forecast. Picky perhaps, but needed to be said.
As for my previous post on inflation, I do see that money supply is the prime mover behind (economic) inflation. The more money, the less it is worth, and prices rise. I guess (without having a current schooling in economics to use the right terminology for the concepts) what I was trying to get at is that raising the minimum wage will only increase the costs to the producers, who buy labor on the market. There will be a short term cut back on employment as the natural demand curve has been futzed with, but the market will readjust, reabsorb workers, with the new floor in place (between the sellers and buyers of labor). Unless there is price controls on the market between producers and consumers (i.e. a ceiling on the macro cost increases) prices of goods will rise nearly equal to the artificially supported price of labor used during production. A long story short, I subscribe to the idea that unless minimum wages are forcibly taken from the profit allocation of production it will eventually be passed on to the laborer in higher cost of goods negating the effects of the increase. The only effect will be to further the distance between the lowest working tier and absolute zero (unemployed). Perhaps this assumes that concurrent massaging of the money supply will happen during the short term exit of employees ‘harvested’ by the increase in minimum wage and their eventual reabsorption into the workforce. But now I am certainly beyond my ken.
I’m not an economist, so I may not write as clearly as I should. Let me make an example. Lots of guys would like a Ferrari, but at $200,000 or so, they are a bit dear. If the price were to drop to, oh, let’s say, $10,000, every dealership in the country would have a line around the block of guys waiting to put down a deposit.
If the price were lower, the “demand” would go up. At the current prices, most guys don’t even bother going window shopping.
Peter,
Your statement that “setting a minimum price for labor will only result in a lower demand for labor” is perfectly clear and entirely correct.
An artificial price increase results in higher supply and lower demand (than under the natural “market clearing” equilibrium price), thereby creating an artificial surplus. In the case of labor, “surplus” means (involuntary) “unemployment”.
The minimum wage argument just does not matter…Even at 7 dollars an hour government handouts will be the rational choice (especially considering min wage jobs do not pay benefits).
We need to take actions that encourage productivity enhancing investment which will drive higher standards of living in the long-run.
It’s interesting to note that, on the marxist theory of exploitation, the higher the wages, the more the worker is exploited. So, a worker in german who makes 8.000 USD is less exploited than a worker in mexico com makes 300 USD.
On a side note, Brazil is voting the raise of the minimum wage. The socialist worker’s party on government wants R$ 260,00, the “right wing” opposition (social democrats + liberal front) want it to be R$ 275,00. Yes. That’s right. BTW Liberals in Brazil supposedly mean “classic liberals”, the opposite of the US. Not that they act like that anyway.
Since the government base payments the public and mandatory pention system on the minimum salary, they can’t allow it to go much higher.
1 USD = 3 R$, more or less.
The opposition, who was on the governent a while ago, had the same fight, backwards. It’s purely for political gain, since the president can use his veto power.
Actually, I made a misatke. The marxist theory is that the german guy is more exploited than the mexican guy. Go figure.
Hi everyone,
I am taking an eco class and we are having a debate as to the pros can cons of raising the minimum wage. I was wondering what everyone who is pro considers the reasons.
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