Why is minimum wage bad?

[christagious]

Maybe it's that good old government conditioning making me think otherwise, but I don't see how this is an absolutely horrible thing.

When I think of "no minimum wage" I think of China, El Salvador, Honduras, etc. where working conditions are absolutely horrible. I can only imagine that in a free market with no minimum wage we'd have sweatshops all over the country. We'd have people working in piss-poor working conditions for practically nothing. Even the possibility of, like in Honduras, where the sweatshops force their young teenage girl workers to take a birth control pill everyday before entering so that they don't get preggo and take time off of work for the baby. They also hit the workers if they're not going fast enough and sometimes rape them.
This may be an extreme extrapolation of what could happen here, but I still think that a minimum wage is somewhat necessary otherwise we'd have people working at Wal-Mart for $1.20 an hour, working at McDonalds for $0.60 an hour, working at a steel factory for $3 or 4 an hour.

Hold on a second................(thinking)..............
You know what? Something just dawned upon me when I was typing in those wages.
Tell me if I'm right: We've all heard of the "old days" when our great-grandparents made, lets say, a dollar a day for a lot of work, but it seems as if that was actually a livable wage. So am I right when I say it's the devaluation of the dollar that makes low wages sound "low"? I think I just taught myself another lesson in the free market. In order to have a free market with no minimum wage, we'd have to not have a Federal Reserve printing money out of thin air, devaluing it, that way a $2.00 an hour wage would actually be equivalent to a 10 dollar salary.

Am I finally getting it? Any more insight?

[torchbearer]

You are assuming that every job has a minimum value.
A kid selling ice shavings at a snow cone stand should get paid the same as someone cooking and preparing food.
Two- it assumes the government owns your money/property/etc. because they pretend they have the right to tell you what to do with it.
Three- it raises the prices of goods.
Four- It makes more people poorer. Minimum raise increases don't raise everyone's salaries, but it does raise everyone's cost of living.
Take it to the extreme to understand this principle.
Let's make everyone millionaries- minimum wage will be set at $1000 an hour.
Cost of a happy meal. $1500.
Are you richer? What about your other bills? They all go up to.
Plus, you fall into a taxable income. Government profits.

[Kludge]

The minimum wage causes inflation (or at least increases the intensity of the "inflation cycle"). When wages go up, prices go up. When prices go up, dollar value goes down (because you cannot make labor more valuable).

Of course, it could eventually cause a huge dollar value increase (deflation-shock?) if the market realizes there isn't as much money as it appears and that they aren't in a "boom" period, which would likely lead to a nearly sudden recession or even lead to a deflationary depression.

[christagious]

You are assuming that every job has a minimum value.
A kid selling ice shavings at a snow cone stand should get paid the same as someone cooking and preparing food.
Two- it assumes the government owns your money/property/etc. because they pretend they have the right to tell you what to do with it.
Three- it raises the prices of goods.
Four- It makes more people poorer. Minimum raise increases don't raise everyone's salaries, but it does raise everyone's cost of living.
Take it to the extreme to understand this principle.
Let's make everyone millionaries- minimum wage will be set at $1000 an hour.
Cost of a happy meal. $1500.
Are you richer? What about your other bills? They all go up to.
Plus, you fall into a taxable income. Government profits.

I started to "see the light" towards the end of my original post, but you also brought up a good point about the snow cone stand.

Could it also be said that the free market would eliminate businesses not paying what the work is worth since nobody would work there? Let's say we have a free market with no minimum wage; McDonalds only wants to pay $1.00 an hour while Burger King and Wendy's are paying $3.00 an hour. Unless McDonalds wants to raise their pay, then in a free market, they'll go under because there won't be any manpower to make their burgers for them. Is this correct?

[brandon]

Maybe it's that good old government conditioning making me think otherwise, but I don't see how this is an absolutely horrible thing.

Yep, it's government conditioning.


Currently, the American minimum wage doesn't damage the economy that much(but it does damage it a little) because it is not that high. Most people in the country are worth more then minimum wage. I actually haven't met anyone that works for minimum wage, ever. I made 75 cents above minimum wage at my first job when I was 14.

So mostly the minimum wage in the US is irrelevant. But it's not totally irrelevant.

The problem is minimum wage laws create unemployment. If someone is worth 6$ an hour, and the minimum wage gets raised to 8$ an hour, that person is going to get fired. They will be out of work. No one is going to pay them more then they are worth....it's basic business.

To illustrate the point, lets take it a bit further. If someone proposes that minimum wage is a good thing for the economy, then why don't we just raise the minimum wage to $75 an hour? Surely we will all live much better lives then, right?

Edit: didn't read torch's post until after I posted. I see he already covered the extreme version.

[Conza88]

Why don't you want the minimum wage to be $50/hr?

->>>>

[RSLudlum]

I started to "see the light" towards the end of my original post, but you also brought up a good point about the snow cone stand.

Could it also be said that the free market would eliminate businesses not paying what the work is worth since nobody would work there? Let's say we have a free market with no minimum wage; McDonalds only wants to pay $1.00 an hour while Burger King and Wendy's are paying $3.00 an hour. Unless McDonalds wants to raise their pay, then in a free market, they'll go under because there won't be any manpower to make their burgers for them. Is this correct?

bingo...the free market works on both ends, the consuming side and the laboring side (but not really on opposing sides because they're both a voluntary exchanging of property)

[SevenEyedJeff]

I used to be a proponent of raising the minimum wage when I was younger, but it just doesn't keep up with inflation (partly because it helps CAUSE inflation) and the politicians always seem to tack on tax breaks for businesses every time it gets passed, so really it's just a wash anyhow.

And also, I don't think a universal minimum would be a good idea. The reason is that in New York City the average wage might be $ 18 an hour, and in a rural town in North Dakota it might be $ 8 an hour, just because the cost of living varies so much. So I think the minimum wage would be more likely to hurt the smaller towns than the big cities.

[Kludge]

I started to "see the light" towards the end of my original post, but you also brought up a good point about the snow cone stand.

Could it also be said that the free market would eliminate businesses not paying what the work is worth since nobody would work there? Let's say we have a free market with no minimum wage; McDonalds only wants to pay $1.00 an hour while Burger King and Wendy's are paying $3.00 an hour. Unless McDonalds wants to raise their pay, then in a free market, they'll go under because there won't be any manpower to make their burgers for them. Is this correct?

That's assuming there are enough jobs and that their labor is really worth $3.00

[LibertyEagle]

Plus, you have to consider the jobs that disappear, just because a small business owner cannot afford to pay someone the minimum wage. So, the business owner just does not hire someone to do some of the things he once used to. Consider the small store owner that used to hire someone to sweep out his store or sack and carry out your groceries.

[TruthisTreason]

http://jim.com/econ/chap19p1.html

[LibertyEagle]

http://www.fee.org/PUBLICATIONS/THE-...e.asp?aid=1456

The Minimum Wage: Good Intentions, Bad Results
By Roger Koopman

Roger Koopman operates a private employment service in Bozeman, Montana,

Ideas have consequences, Richard Weaver once wrote. They pace the course of human history—both good ideas and bad. And while intentions may be honorable, the passing of time has proven that, in the long term, you can’t get good results from bad ideas.

The minimum wage is a classic example of a good intention and a bad idea. The idea behind minimum wage legislation is that government, by simple decree, can increase the earning power of all marginal workers. Implicit in this idea is the notion that employment is an exploitive relationship and that business owners will never voluntarily raise the wages of their workers. Businesses, we are told, must be coerced into paying workers what they deserve, and only politicians know what this is.

Not only does this line of thinking run contrary to the most basic economic principles of a free society, but it is also patently illogical. If government could raise the real wages of millions of Americans by merely passing a law announcing that fact, then why stop at $3.35 per hour, or $4.65, or even $107 Isn’t $500 per hour more compassionate than $50? Absurd, you say, and I would agree. But the “logic” is perfectly consistent with the idea of a minimum wage, once you have accepted the premise that political decrees can raise wages.

What does make wages rise? It is most certainly not government edicts that simply rearrange and redistribute existing wealth. Wages rise in response to the creation of new wealth through greater productivity. The more that a society produces per capita, the more there is to distribute through the marketplace in the form of higher wages, better benefits, and lower prices.

The “bigger economic pie” concept is not complicated in the least, and yet it is a principle that seems to elude us time and again in matters of public policy. We know instinctively that government cannot create or produce anything. It regulates, confiscates, and consumes, all at the expense of the private economy. And yet we still believe that government can wave its magic wand with laws like the minimum wage, and we all will be better off.

Politicians engage in this deception to buy political favor from special interest groups. We keep falling for these political deceptions because our focus is on short-term personal gains rather than on the long-term consequences to the entire nation. We see the apparent benefit of having our own wages increased. But we don’t consider the nameless victims of the minimum wage hike who will lose their jobs because the government has priced them out of the labor market. (It is precisely because minimum wage laws eliminate low-skilled workers from competing in the job market that organized labor lobbies Congress for massive minimum wage hikes.)

Commenting on the minimum wage, economist Henry Hazlitt put it succinctly:

You cannot make a man worth a given amount by making it illegal for anyone to offer him less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low wage you substitute unemployment. You do harm all around, with no comparable compensation.[1]

The net loss to society that results from this sweeping act of “wrongful discharge” is staggering. Those losses include: (1) The loss of employment to the individual himself, (2) the shrinking of the economic pie by the loss of his productive contribution, (3) the financial loss to society in supporting him in his idleness (unemployment compensation, welfare, etc.), (4) the financial loss in funding useless job training programs and other government efforts to get him re-employed, and (5) the net loss to society in having consumer prices driven up to cover the higher labor costs, and the loss of market share to foreign competition that may occur.

The cruel irony of the minimum wage is that it harms most the very segments of our society that it is intended to help—the unskilled poor and the inexperienced young. The evidence to support this is overwhelming, and it is the black community that is the hardest hit. in the 1950s, black teenage unemployment was roughly that of white teens. Following years of steady increases in both the level and coverage of the Federal minimum wage, over 40 per cent of the nation’s black teenagers are now unemployed.

Just look at all the jobs that have been abolished by the minimum wage—good and worthwhile jobs for those who are taking their first step on the economic ladder. Movie ushers, gas station attendants, caddies, fruit pickers, dishwashers, fast food help, and a wide variety of other entry-level job opportunities have been either cut back or eliminated because the minimum wage has rendered them unaffordable. How tragic this is, when you consider the true value of these low-level jobs to young and unskilled workers.

Reflecting on his early years in a Philadelphia slum, black economist Walter Williams observed:

None of these jobs paid much, but then I wasn’t worth much. But the real value of early work experiences is much more important than the little change a kid can earn. You learn how to keep a job. You learn how to be prompt, respect and obey superiors, and develop good work habits and attitudes that can pay off in the future. Additionally, there is the self-respect and pride that comes from being financially semi-independent.[2]

If a young person is willing to wash cars for $2.50 an hour to gain work experience and self-esteem, is it the right of Congress to tell him he can’t do it? Is it, in fact, the right of any politician to make these kinds of economic choices for a free people?

Commenting again on the minimum wage, Williams makes this critical observation:

It is important to note that most people acquire work skills by working at “subnormal wages” which amounts to the same thing as paying to learn. For example, inexperienced doctors (interns), during their training, work at wages which are a tiny fraction of that of trained doctors. College students forego considerable amounts of money in the form of tuition and foregone income so that they may develop marketable skills. It is ironic, if not tragic, that low skilled youths from poor families are denied an opportunity to get a start in life. This is exactly what happens when a high minimum wage forbids low skilled workers to pay for job training in the form of a lower beginning wage.[3]

In a free society, people must have the right to offer their services in the marketplace for whatever price they choose, whether they are workers serving employers or businesses serving consumers. It is by this process that productivity, wage rates, and prosperity are maximized. Government has no more business objecting to a low wage rate for a menial job than it has objecting to a business that offers its services or products for a low price. Government intervention in these matters distorts economic decision-making, misallocates scarce resources, and destroys personal liberty.

If we are to remain a free people, we need to start trusting freedom, and jealously guard our right to make our own choices about our own lives. Repealing the minimum wage law would be an excellent place to start. []

1. Heny Hazlitt, Economics in One Lesson (New York: Arlington House Publishers, 1979), p. 135.

2. Walter Williams, “Wage Laws Keep Teens Jobless.” Colorado Springs Gazette Telegraph, May 16, 1986 (syndicated column).

3. Walter Williams, “Government Sanctioned Restraints that Reduce Economic Opportunities for Minorities.” Policy Review, No. 2 (I 977). p. 11, (Quoted in Poverty and Wealth: The Christian Debate Over Capitalism, by Ronald H. Nash. [Westchester. Illinois: Crossway Books, 1986], p, 122.)

[torchbearer]

I started to "see the light" towards the end of my original post, but you also brought up a good point about the snow cone stand.

Could it also be said that the free market would eliminate businesses not paying what the work is worth since nobody would work there? Let's say we have a free market with no minimum wage; McDonalds only wants to pay $1.00 an hour while Burger King and Wendy's are paying $3.00 an hour. Unless McDonalds wants to raise their pay, then in a free market, they'll go under because there won't be any manpower to make their burgers for them. Is this correct?

Good question. People will not work somewhere if it can't help them make their bills.
This is how higher prices eventually lead to higher wages.
For instance, in this town, their are tons of "help wanted" signs at gas stations, small shops, etc. You are thinking, wow, business must be booming.
But that isn't the case. People can no longer afford to work for them so they leave for other employment. So everyone who is looking to hire, but is only paying minimum wage are unable to find people to work for those wages.
Why? because of the cost of living. WHy would I work my ass off every week only to have all my bills go to default anyway? I wouldn't. I'd rather find a job that will keep my bills paid. especially food, medicine, and basic utilities like sewage and trash pick-up (its illegal to burn trash)

[cien750hp]

http://jim.com/econ/chap19p1.html

i was gonna post that too. theres also a section in "economics for real people" about minimum wages. both of these are must-reads
http://mises.org/books/econforrealpeople.pdf

[brandon]

i was gonna post that too.

haha, I actually posted the text of that chapter earlier today in another thread.

Great minds think alike!

[Knighted]

I'm seeing some things that are causing macroeconomic conflicts in my head.

The phillips curve shows an inverse relationship between inflation and unemployment, which I recall reading tends to hold true aside from a few sets of years when anomalies like stagflation occurred. This means that if inflation goes up, unemployment should generally go down and vice versa.

But many have said that a minimum wage increase raises inflation. And many have also said that a minimum wage increase raises unemployment. Based on the phillips curve, this normally shouldn't be true. Anyone comment?

[torchbearer]

I'm seeing some things that are causing macroeconomic conflicts in my head.

The phillips curve shows an inverse relationship between inflation and unemployment, which I recall reading tends to hold true aside from a few sets of years when anomalies like stagflation occurred. This means that if inflation goes up, unemployment should generally go down and vice versa.

But many have said that a minimum wage increase raises inflation. And many have also said that a minimum wage increase raises unemployment. Based on the phillips curve, this normally shouldn't be true. Anyone comment?

unemployment increases with inflation because people can't afford to work for less(there bills are too high), and employers can't afford to pay their employees more(there bills are higher).
its the middle class squeeze.

[noxagol]

Minimum wage is bad if you don't have a job. It gives people higher pay at the expense of other people not having a job.

[Raditude]

Wages are usually relative to cost of living. Back when my Grandpa was young he worked for 60 cents an hour or so. Thing is, Coke's were only a nickel for a bottle.

The reason minimum wage goes up, is because the cost of living goes up. Sometimes they aren't relative, and that's when we have economic troubles. If the cost of living goes up, but wages stay the same, we enter into a recession or a depression. If the cost of living drops, but our wages stay the same, we enter a good market, but once it balances out, it over-compensates usually putting us in a recession.

It's best to be close to the middle of those situations, because getting close to the edges usually sends it back the other way at full speed, like a ball connected to a rubber band.

[LibertyEagle]

Wages are usually relative to cost of living. Back when my Grandpa was young he worked for 60 cents an hour or so. Thing is, Coke's were only a nickel for a bottle.

The reason minimum wage goes up, is because the cost of living goes up. Sometimes they aren't relative, and that's when we have economic troubles. If the cost of living goes up, but wages stay the same, we enter into a recession or a depression. If the cost of living drops, but our wages stay the same, we enter a good market, but once it balances out, it over-compensates usually putting us in a recession.

It's best to be close to the middle of those situations, because getting close to the edges usually sends it back the other way at full speed, like a ball connected to a rubber band.

No.

Government has no business determining the wages that private industry should pay THEIR employees. It should be left up to the market to decide.

What you are describing is government central planning. Beyond the obvious reasons to be against this, government has not been ordained with the knowledge of where each individual business can set their lowest wages and still make it profitable for said businesses to offer those jobs.

[Raditude]

No.

Government has no business determining the wages that private industry should pay THEIR employees. It should be left up to the market to decide.

What you are describing is government central planning. Beyond the obvious reasons to be against this, government has not been ordained with the knowledge of where each individual business can set their lowest wages and still make it profitable for said businesses to offer those jobs.

I didn't even mention anything about government control. That's how it works regardless of government control or on the free market.

[LibertyEagle]

I didn't even mention anything about government control. That's how it works regardless of government control or on the free market.

Nope. The free market does not establish some mythical "minimum wage" across all jobs and areas of the country. If the free market was deciding wages, as they should, wages would differ depending upon job, locale, etc. If a person is unwilling to work for the amount of money offered them, they are free to go look elsewhere. If the business owner wants to hire someone to do that job and keeps being turned down, they will be required by the market to increase the pay. When government arbitrarily sticks their big nose into it, they screw up supply and demand. Amazingly, they think they can set some stupid floor for minimum wage and business will just pay it. If it's that easy, why don't they just set it at $100/hour; heck, let's make it $1000/hour. If you say no, then think about WHY you are saying NO. Because that very same reason is applicable to what the federal government is doing now.

What I think you may be missing is the fact that minimum wages made a number of entry level jobs that once upon a time used to exist, totally evaporate. Because the business-owner could no longer afford to offer those jobs at what the government was requiring them to pay.

[Raditude]

Nope. The free market does not establish some mythical "minimum wage" across all jobs and areas of the country. If the free market was deciding wages, as they should, wages would differ depending upon job, locale, etc. If a person is unwilling to work for the amount of money offered them, they are free to go look elsewhere. If the business owner wants to hire someone to do that job and keeps being turned down, they will be required by the market to increase the pay. When government arbitrarily sticks their big nose into it, they screw up supply and demand. Amazingly, they think they can set some stupid floor for minimum wage and business will just pay it. If it's that easy, why don't they just set it at $100/hour; heck, let's make it $1000/hour. If you say no, then think about WHY you are saying NO. Because that very same reason is applicable to what the federal government is doing now.

What I think you may be missing is the fact that minimum wages made a number of entry level jobs that once upon a time used to exist, totally evaporate. Because the business-owner could no longer afford to offer those jobs at what the government was requiring them to pay.

I was just talking about wages in general. Wages are determined by cost of living. If it costs a lot to live, and someone doesn't offer enough pay, then the person can turn down the job, exactly as you said. There's nothing to argue here.

[LibertyEagle]

I didn't even mention anything about government control. That's how it works regardless of government control or on the free market.

You're wrong on this though and you seem to be supporting it.

[LibertyEagle]

I was just talking about wages in general. Wages are determined by cost of living. If it costs a lot to live, and someone doesn't offer enough pay, then the person can turn down the job, exactly as you said. There's nothing to argue here.

No, wages are not determined by the cost of living. That may be a factor in a potential employees motivation to find a job with a base level of pay, but that is nowhere near the sole determinator. Wages are determined by what a business is willing to pay to get a certain job done and their ability to find someone willing to work for that amount. If people, or government, demand more than the job is worth to the business, then the job may go away entirely.

[krazy kaju]

Minimum wage acts as a barrier to work for unskilled workers.





Case closed.

[brandon]

Minimum wage acts as a barrier to work for unskilled workers.





Case closed.

Those graphs are completely meaningless to me without labels.

L? Q? D? S?

quantity of what?

[Kludge]

Those graphs are completely meaningless to me without labels.

L? Q? D? S?

quantity of what?

L = labor

Q = Quantity (labor)

D = Demand

S = Supply

W = Wages

(so then, labor supplied, labor demanded, wages supplies, wages demanded)

In the "perfect"chart it shows there being some line where the wage is minimum, I'm guessing that's where the creator declared the standard of living, where working there wouldn't allow for them to survive and thus wouldn't be worth working there.

[krazy kaju]

Quantity of labor. Never seen a supply and demand curves before, I assume?

In written fashion:

The minimum wage sets a price control above the market wage for some workers. A higher price means less demand, which means that employers will employ less workers and that the workers they do employ will be the most skilled (because only their labor will be worth the higher-than-market wage). Hence, like other price controls that are too high, you will have a "surplus of labor" (unemployment).

[krazy kaju]

"Both blades of the scissor" as one economist once put it.