Posted on 07/10/2009 9:04:24 AM PDT by Painesright
In a free market, demand is always a function of price: the higher the price, the lower the demand. What may surprise most politicians is that these rules apply equally to both prices and wages. When employers evaluate their labor and capital needs, cost is a primary factor. When the cost of hiring low-skilled workers moves higher, jobs are lost. Despite this, minimum wage hikes, like the one set to take effect later this month, are always seen as an act of governmental benevolence. Nothing could be further from the truth...
(Excerpt) Read more at europac.net ...
His website is www.schiffforsenate.com
Awesome. Go PS!
“What may surprise most politicians is that these rules apply equally to both prices and wages”
Wages ARE prices. They are the price you pay for labor.
FULL ARTICLE:
In a free market, demand is always a function of price: the higher the price, the lower the demand. What may surprise most politicians is that these rules apply equally to both prices and wages. When employers evaluate their labor and capital needs, cost is a primary factor. When the cost of hiring low-skilled workers moves higher, jobs are lost. Despite this, minimum wage hikes, like the one set to take effect later this month, are always seen as an act of governmental benevolence. Nothing could be further from the truth.
When confronted with a clogged drain, most of us will call several plumbers and hire the one who quotes us the lowest price. If all the quotes are too high, most of us will grab some Drano and a wrench, and have at it. Labor markets work the same way. Before bringing on another worker, an employer must be convinced that the added productivity will exceed the added cost (this includes not just wages, but all payroll taxes and other benefits.) So if an unskilled worker is capable of delivering only $6 per hour of increased productivity, such an individual is legally unemployable with a minimum wage of $7.25 per hour.
Low-skilled workers must compete for employers’ dollars with both skilled workers and capital. For example, if a skilled worker can do a job for $14 per hour that two unskilled workers can do for $6.50 per hour each, then it makes economic sense for the employer to go with the unskilled labor. Increase the minimum wage to $7.25 per hour and the unskilled workers are priced out of their jobs. This dynamic is precisely why labor unions are such big supporters of minimum wage laws. Even though none of their members earn the minimum wage, the law helps protect their members from having to compete with lower-skilled workers.
Employers also have the choice of whether to employ people or machines. For example, an employer can hire a receptionist or invest in an automated answering system. The next time you are screaming obscenities into the phone as you try to have a conversation with a computer, you know what to blame for your frustration.
There are numerous other examples of employers substituting capital for labor simply because the minimum wage has made low-skilled workers uncompetitive. For example, handcarts have replaced skycaps at airports. The main reason fast-food restaurants use paper plates and plastic utensils is to avoid having to hire dishwashers.
As a result, many low-skilled jobs that used to be the first rung on the employment ladder have been priced out of the market. Can you remember the last time an usher showed you to your seat in a dark movie theater? When was the last time someone other than the cashier not only bagged your groceries, but also loaded them into your car? By the way, it won’t be long before the cashiers themselves are priced out of the market, replaced by automated scanners, leaving you to bag your purchases with no help whatsoever.
The disappearance of these jobs has broader economic and societal consequences. First jobs are a means to improve skills so that low skilled workers can offer greater productivity to current or future employers. As their skills grow, so does their ability to earn higher wages. However, remove the bottom rung from the employment ladder and many never have a chance to climb it.
So the next time you are pumping your own gas in the rain, do not just think about the teenager who could have been pumping it for you, think about the auto mechanic he could have become – had the minimum wage not denied him a job. Many auto mechanics used to learn their trade while working as pump jockeys. Between fill-ups, checking tire pressure, and washing windows, they would spend a lot of time helping – and learning from – the mechanics.
Because the minimum wage prevents so many young people (including a disproportionate number of minorities) from getting entry-level jobs, they never develop the skills necessary to command higher paying jobs. As a result, many turn to crime, while others subsist on government aid. Supporters of the minimum wage argue that it is impossible to support a family on the minimum wage. While that is true, it is completely irrelevant, as minimum wage jobs are not designed to support families. In fact, many people earning the minimum wage are themselves supported by their parents.
The way it is supposed to work is that people do not choose to start families until they can earn enough to support them. Lower wage jobs enable workers to eventually acquire the skills necessary to earn wages high enough to support a family. Does anyone really think a kid with a paper route should earn a wage high enough to support a family?
The only way to increase wages is to increase worker productivity. If wages could be raised simply by government mandate, we could set the minimum wage at $100 per hour and solve all problems. It should be clear that, at that level, most of the population would lose their jobs, and the remaining labor would be so expensive that prices for goods and services would skyrocket. That’s the exact burden the minimum wage places on our poor and low-skilled workers, and ultimately every American consumer.
Since our leaders cannot even grasp this simple economic concept, how can we expect them to deal with the more complicated problems that currently confront us?
I disagree, I think a minimum wage is an aspect of our society that makes us more civilized than the third world. Americans don’t want to be treated like Mexican or Chinese labor, and worked hard to lobby for that minimum wage. There is no company or business that is going into bankruptcy because they have to pay a minimum wage. This is why Libertarianism will never win an election in this country.
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I have to break with the “party” on this one.
While the market should determine the price of labor there needs to be some reasonable bottom floor. That said, companies would be more productive if they tied EVERYONE’S salary to corporate performance from the CEO to the janitor. Give everyone a personal stake in the success of the business.
I’ve tried having a conversation with libs about how the artificial increases in the minimum wage actually hurts people who are working at minimum wage because that increase result in the cost of living going up. They just cannot wrap their mind around the fact that when the government forces wage increases, the people that are suppose to be benefiting are actually losing buying power as the cost of everything rises from those increases. They also can’t understand that the governments real goal is simply to keep people at the lower levels of the socio-economic ladder beholden to the government.
“While the market should determine the price of labor there needs to be some reasonable bottom floor. That said, companies would be more productive if they tied EVERYONE’S salary to corporate performance from the CEO to the janitor. Give everyone a personal stake in the success of the business.”
Absolutely correct!
I think labor markets can sometimes reach an equibrium price that is unacceptably low. Especially with unskilled labor. I think the supply of jobs at the low-can be relatively fixed or a steep curve, and therefore the removal of a minimum wage, won’t necessarily result in a b bunch more jobs but rather just lower wages.
I think labor markets can sometimes reach an equibrium price that is unacceptably low. Especially with unskilled labor. I think the supply of jobs at the low-can be relatively fixed or a steep curve, and therefore the removal of a minimum wage, won’t necessarily result in a b bunch more jobs but rather just lower wages.
I also think, that the only way we can compete with countries like China that have huge labor forces willing to work for $1 or $2 a day, is to either drop our wages and become a third world country, or automate.
So if the minimum wage is providing an incentive to automate, then I view that as a positive, because it brings production back to the U.S. And where production is, there also will be found the engineering, design and marketing jobs.
I also think, that the only way we can compete with countries like China that have huge labor forces willing to work for $1 or $2 a day, is to either drop our wages and become a third world country, or automate.
So if the minimum wage is providing an incentive to automate, then I view that as a positive, because it brings production back to the U.S. And where production is, there also will be found the engineering, design and marketing jobs.
I wonder how many liberals who love the minimum wage also hate foreign call centers. They probably don’t understand how their support for the minimum wage lead to their recent conversation with that pleasant, but somewhat unintelligible, gentleman from India.
(Hint: Artificially driving up the price of one commodity will drive the price of others up as well.)
“I wonder how many liberals who love the minimum wage also hate foreign call centers. They probably don’t understand how their support for the minimum wage lead to their recent conversation with that pleasant, but somewhat unintelligible, gentleman from India.”
Those jobs, neither here nor there pay the minimum wage, so that does not apply. I have always been surprised that a tariff system has not developed to balance out disparate economies, to offset in someway the $1/hr countries.
>>>There is no company or business that is going into bankruptcy because they have to pay a minimum wage.
Correct. It’s just the minorities and teenagers who are hurt by going without jobs.
If minimum wage is so good, then let’s make it $400 per hour.
“It’s just the minorities and teenagers who are hurt by going without jobs.”
I think in many cases, this is a scenario of kids not willing to really work anymore as well as much of those jobs taken by immigrants. Finding a McD’s with an all English shift is like trying to find a half dozen men in Washington.
half dozen honest men, that is.
Americans are unemployed and without good paying jobs because most of our manufacturing jobs have been exported through free trade agreements and because tens of millions of illegals are taking jobs and diluting the labor pool and wages. Stop with this minority victimhood nonsense. The black man isn’t unemployed because evil whitey lobbied for a minimum wage in the early 1900s
In a shortsighted move that assisted with severing a connection between a local newspaper and their community - kids tossing papers was replace by bored, poor, unionized or drug addicted delivery men dumping the paper at the end of your driveway.
McDonalds - a group that at one time had employed almost 1 in 10 American at some point in their lives - also switched from fresh faced high schoolers to bored 40 year olds who couldn't get other jobs. It changed the nature of the place - a change that will show up in about 15 years as the last of Americans with "fond memories of their first jobs" leave the McDonalds customer base.
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