Thursday, May 01, 2008

Assessing the Minimum Wage

You're talking to a guy who doesn't have a huge beef with the minimum wage. Then again I do have to question how does a government get off telling a private business the price floor for their workers. The idea here is that it may prove to be more hurtful as far as prospects of a business hiring as opposed to helping those people we refer to as the working poor get paid better.

Article from via The State of...

In order to be effective, a minimum wage must necessarily artificially hold wages higher than they would otherwise be on the free market (that is, hold wages higher than MRP). If a minimum wage is introduced then, employment must fall, because otherwise employers incur (essentially hourly) losses. Professor Walter Block sums up this problem by stating:

If the law requires that a low-skilled person be paid, say, $4 per hour, and his productivity is only $3 per hour, all the firm need do is take on several highly skilled employees (and some sophisticated machinery) instead, and avoid like the plague the unskilled workers it would have otherwise hired.

So by requiring minimum wage rates which are over the level of productivity of the employees, minimum wage legislation causes unemployment. The above quote hints at another aspect of the minimum wage problem, discrimination, which will be discussed further below. First, however, we must recognize that an employers’ profitability – and thus, his ability to employ – depends upon his ability to pay workers wages equal to their productivity. Without this ability, the employer does not merely reap lower profits, he necessarily incurs losses.

Regardless of our sympathies for young, unskilled, and uneducated workers, it almost absurd to argue that unemployment is better than employment at a low wage rate. This is especially true when employees wish to work at a certain wage rate and find themselves unemployable due to the minimum wage.

Go read the whole thing. I would suggest that we should beware of any talk of artificially raising the minimum wage with the idea of helping the "working poor". There's only so much one can do about the "working poor". Indeed there is only so much raising a minimum wage can do.

When you think about it, it's better to support generally pro-business policies in order to have lower unemployment. The minimum wage is not a pro-business policy when you think about it. A company should be able to pay whatever it can afford to pay its employees. If it benefitted a company to hire more people and to pay them what they deemed fit, that shouldn't be a problem. Especially if said individuals eventually get promoted or a raise.

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