What You Need to Know About the Minimum Wage

Von Mises Institute ^ | September 10th, 2004 | Shawn Ritenour

[vpintheak]

In other words, governemnt stay the heck out of our free market capitalism! I like the arguments used.

[SteveMcKing]

Like all good teenagers, I made minimum wage doing retail work. I have no doubt that if my wages were higher (say, doubled), I never would have been motivated to go to college. I would STILL be back at that stupid bookstore making a tiny paycheck, no where near what I make now.

(That assumes the store would still be in business after firing half their staff in order to give us such a raise...)

[DannyTN]

The reason minimum wages were put in place in the first place, was that labor economics doesn't always result in an equilibrium wage that is fair. The classic example out of which labor unions were born were the great dust bowl days of California, where payment for a days wage was not enough for a man to eat, much less feed a family.

Of course there was employer collusion during those days too, but the fact remains that there were far more laborers than there were jobs to do. A lack of a minimum wage didn't help at least not in the short term. It probably did help over the course of a couple of years.

The questions about how poor are the poor, may be relevant. I don't have cable, so if the poor have cable, one has to ask what's wrong with this picture.

On the other hand, the fact that the poor may live in more spacious accomodations than foreign countries even though they can't pay the rent, may well have more to do building codes than poor judgement of the poor. If the poor can't find accomodations, because we've said we don't want unsafe shacks in our town, then do we not have a responsibility to help those disenfranchised?

I'm not convinced that the minimum wage causes significant unemployment. Or that the net effect on the economy and society of gaining any employment from removal of minimum wages would be desireable.

Rather, I think the income tax and taxes on services are a greater culprit. The fact is I do my own plumbing and electrical work. I'm not as efficient as a plumber or electrician, but by the time they get through marking their services up for taxes and regulatory compliance and overhead, and on and on and on. They cost me a day and a half after tax pay for an hour work. High tax rates result in a loss of specialization which harms the economy.

[supercat]

The only way minimum-wage laws raise anybody's wages is by preventing certain people from competing for jobs.

[Remember_Salamis]

"Union contracts are tied to the minimum wage. The union workers across the board will get raises too. This will cost the economy a lot more than the 'poor' getting an increase."

Exactly! It changes the entire labor equation across the board by changing the basic equation, and that's why even "upper-class unions" such as airline pilots, electricians, and carpenters all vehemently demand an increase in the minimum wage.

Here's what I mean by changing the basic equation:

if:
x amount of labor = y amount of wages

then:

2x labor = 2y wages

It's that simple.

So, if the minimum wage is $5, and the job you perform is twice as valuable as that done by a minimum wage employee, you the nhave a megitimate argumant that you should make at least $10.

The minimum wage also makes all minimum wage work of EQUAL VALUE, which is false. I'm in my early 20s, so I still remember working for minimum wage. When faced with the choice of getting paid $5/hr. to flip burgers or getting paid $5/hr. to work at a cushy retail store, it's NOT a difficult choice (the retail store). This fundamentally skews the labor market.

[Hank All-American]

The real reason for the minimum-wage debate is more cynical. Look at the senators who support hikes in the minimum wage. They all come from high cost of living locations. Entry level wages in those states are usually much higher than the federal minimum wage. The reason they support it is because it raises the cost of labor in competing states with lower costs of living. This way, Massachusetts, through its Senators, can protect itself from corporate relocations and competition affecting its products by raising the cost of doing business in places like South Carolina, with no impact to itself.

[Remember_Salamis]

"The real reason for the minimum-wage debate is more cynical. Look at the senators who support hikes in the minimum wage. They all come from high cost of living locations. Entry level wages in those states are usually much higher than the federal minimum wage. The reason they support it is because it raises the cost of labor in competing states with lower costs of living. This way, Massachusetts, through its Senators, can protect itself from corporate relocations and competition affecting its products by raising the cost of doing business in places like South Carolina, with no impact to itself."

-- Great point; never thought of that.

[Optimist]

all while pretending to help the poor.

...at other peoples expense

a perfect example of Liberalism run amuck - "oooh I am a wonderful person because I took somebody else's money and gave you some of it".

Don't forget the other things tied to wages that also go up: FICA and Medicare taxes, unemployment taxes, union wage bases(-already mentioned), all other wages you pay(-just like unions, you can't raise the minimum wage above or towards any starting wage you already pay without them going up too),workers comp insurance, .....

[pop-aye]

ping

[Army Air Corps]

And it is another way for the feds to get more money via payroll and income taxes.

[Alberta's Child]

Look at the senators who support hikes in the minimum wage. They all come from high cost of living locations.

Great point. I'd also add that they generally come from states with large populations of illegal immigrants, most of whom work "under the table" for cash -- and who therefore often don't get paid even the Federal minimum wage for their work.

[paradoxx]

while subtle increases in minimum wage are almost necessary to accommodate the general price increases (the Florida hurricanes will force fruits and vegetables to rise in price, Iraq and Venezuela will be influencing the oil marker.) Wage hikes will cause the disequilibrium between the different working levels and make the corporate ladder that much more difficult to get a hold of.

It would also encourage that many jobs to be outsourced (another unfortunate result of unions) usually to India where the economic impact is negligible.

Since Kerry has been called a flip-flop, does it really matter what he says at this point?

[In veno, veritas]

I would contend that if the government had not been messing around with the economy in the first place, the Great Depression would not exist as we know it, but only as a mere money contraction like the other recessions preceding it. That is what caused the labor market to get swamped as well as resulting in the real enemy of the market, a monopoly, in this case the few businesses could vastly affect price of labor with their market power.

[CONSERVE]

The price of the min wage hike will always be passed on to the consumer there by all prices rise with the min. wage.
This defeats any reasoning for the hike to begin with. Every time I hear someone talk about a hike I pray it won't happen.

[RipSawyer]

There are all sorts of arguments that can and have been made for and against a minimum wage. Basically I am against it as I am against any government action which I do not consider absolutely necessary. Having said that let me go on to say that it is time to either get rid of it or raise it. The minimum wage went to $1.25 per hour in 1963, speaking only for my own area in South Carolina I can say that anyone making double that amount in 63 could get married, buy a house and raise children without the absolute necessity of having a working spouse. Today the minimum is $5.15 and anyone making double that amount can certainly NOT afford to do those things without a working spouse. Even with a spouse working and earning double the minimum, times would be tough for a young couple starting out now. All the basic necesssities of life have gone up ten times or more since 1963 in this area while taxes now take a larger percentage of income. I believe the existing minimum wage is more of an excuse to hold down wages than a support for wages and we should eliminate it. The alternative of raising it up so that it would buy as much of the necessities of life as $1.25 would buy in 1963 would mean a minimum of at least $12.50 an hour now. Such an increase would hurt far more people than it would help. And before someone hits me with the official inflation adjustment figures, note that I said "necessities" I was here then and I am here now and necessities cost at least ten times what they cost in 1963 not to mention taxes, in SC we had a three per cent sales tax in 1963 and now most counties have a one percent local added to a five percent state sales tax for a total of double the sales tax rate.
What this means is that the sales tax on most food items is now equal to at least sixty percent of what the item cost in 1963. The problem with the official figures is they are made up to adjust for things like TV sets etc. that are not really necessities but are cheaper now than they have ever been, I can't name a single actual necessity that is not enormously more expensive now.

[Remember_Salamis]

"I would contend that if the government had not been messing around with the economy in the first place, the Great Depression would not exist as we know it, but only as a mere money contraction like the other recessions preceding it. That is what caused the labor market to get swamped as well as resulting in the real enemy of the market, a monopoly, in this case the few businesses could vastly affect price of labor with their market power."

-- Close; The Depression WAS caused by a monetary contraction due to the Federal Reserve. In a capitalist society, runs on banks are inevitable as banks loan out more than they should (in fact, the US has has 3 - 4 depressions in it's history, all a result of "bank runs"). A major bank would collapse, but it owuld be compartmentalized. However, under the Federal Reserve there was, in essense, a "run" on all banks after the Fed encouraged banks to loan out WAAAAY too much money. This caused the stock market run-up. The Fed then pulled sharply on the economy's leash, leading to a "credit crunch". That in itself was nothing we couldn't have quickly recovered from, but both Hoover AND Roosevelt made it worse by hiking taxes and stifling trade.

[Fruitbat]

The minimum wage is obsolete.