Posted on 02/07/2017 4:30:25 AM PST by Kaslin
There is little question in most academic research that increases in the minimum wage lead to increases in unemployment. The debatable issue is the magnitude of the increase. An issue not often included in minimum wage debates is the substitution effects of minimum wage increases. The substitution effect might explain why Business for a Fair Minimum Wage, a national network of business owners and executives, argues for higher minimum wages. Let's look at substitution effects in general.
When the price of anything rises, people seek substitutes and measures to economize. When gasoline prices rise, people seek to economize on the usage of gas by buying smaller cars. If the price of sugar rises, people seek cheaper sugar substitutes. If prices of goods in one store rise, people search for other stores. This last example helps explain why some businessmen support higher minimum wages. If they could impose higher labor costs on their less efficient competition, it might help drive them out of business. That would enable firms that survive to charge higher prices and earn greater profits.
There's a more insidious substitution effect of higher minimum wages. You see it by putting yourself in the place of a businessman who has to pay at least the minimum wage to anyone he hires. Say that you are hiring typists. There are some who can type 40 words per minute and others, equal in every other respect, who can type 80 words per minute. Whom would you hire? I'm guessing you'd hire the more highly skilled. Thus, one effect of the minimum wage is discrimination against the employment of lower-skilled workers. In some places, the minimum wage is $15 an hour. But if a lower-skilled worker could offer to work for, say, $8 an hour, you might hire him. In addition to discrimination against lower-skilled workers, the minimum wage denies them the chance of sharpening their skills and ultimately earning higher wages. The most effective form of training for most of us is on-the-job training.
An even more insidious substitution effect of minimum wages can be seen from a few quotations. During South Africa's apartheid era, racist unions, which would never accept a black member, were the major supporters of minimum wages for blacks. In 1925, the South African Economic and Wage Commission said, "The method would be to fix a minimum rate for an occupation or craft so high that no Native would be likely to be employed." Gert Beetge, secretary of the racist Building Workers' Union, complained, "There is no job reservation left in the building industry, and in the circumstances, I support the rate for the job (minimum wage) as the second-best way of protecting our white artisans." "Equal pay for equal work" became the rallying slogan of the South African white labor movement. These laborers knew that if employers were forced to pay black workers the same wages as white workers, there'd be reduced incentive to hire blacks.
South Africans were not alone in their minimum wage conspiracy against blacks. After a bitter 1909 strike by the Brotherhood of Locomotive Firemen and Enginemen in the U.S., an arbitration board decreed that blacks and whites were to be paid equal wages. Union members expressed their delight, saying, "If this course of action is followed by the company and the incentive for employing the Negro thus removed, the strike will not have been in vain."
Our nation's first minimum wage law, the Davis-Bacon Act of 1931, had racist motivation. During its legislative debate, its congressional supporters made such statements as, "That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country." During hearings, American Federation of Labor President William Green complained, "Colored labor is being sought to demoralize wage rates."
Today's stated intentions behind the support of minimum wages are nothing like yesteryear's. However, intentions are irrelevant. In the name of decency, we must examine the effects.
Once again, Walter Williams cuts through all the blather to drill right into the heart of the matter.
Entry level employees with limited skills are apprentices. They have limited value to an employer. They take up space and are capable of the most basic tasks, usually done poorly. Their value increases as their skill, even at basic tasks, improves.
Requiring employers to pay a living wage to apprentices forces employers to eliminate apprentice level employment from the labor force, or, to set a higher standard for entry level apprentices. This begs the question of where training becomes available for entry level employees. Public education can provide basic job skill training.
Living wage standards has the additional influence of motivating the employer to automate entry level tasks. All of these effects of living wage pressure on entry level jobs has the unintended (?) effect of increasing unemployment among the young and unskilled. The plus side, of course, is the positive effect of increased employer expectations/requirements on motivated young apprentices.
The group most negatively affected by living wage standards is the poorly motivated unskilled segment of the labor force that has no expectation or desire to improve their employment skills and simply wants the most money for the least work. These are the real losers, as they should be.
The argument that a job, any job, should provide a minimum standard living wage begs the question of the nature of that standard.
If the minimum wage is expected to provide all of the basic elements of an acceptable standard of living for a family of 3 it will fail by restricting upward mobility in the labor force. This has the effect of creating a class of employees that are unable to rise above basic income. It creates a steel vault that prohibits entry level employees from advancing. This model completely restructures labor/management to a more primitive economic model. For t5hat segment of the population looking for maximum benefit for minimum effort this is likely desirable.
Entry-level employees are exactly that, no more, no less. The ones who perform well move up, either within the company or elsewhere. The ones who don't, or can't perform, move on. Hopefully they find a niche where they fit.
When I'm hiring if I'm forced to pay a wage higher than entry-level, then I'll not hire entry-level employees. Simple as that.
Or, to expand on Williams' example, if I need an 80 WPM experienced typist, I can pay $20/hour for one. Or, I can pay $7.25/hr for a couple of entry-level people who can type 35 WPM, and $10/hr for someone with a year or so of experience who can type 55 WPM. I'll expect to retain and maybe promote one (to "senior 80WPM typist?"), train one and have them move on, and lose one to attrition, or inadequacy.
But I'll not pay $15/hr times 3 to get what I need.
Thomas Sowell would easily concur with the article. It reflects exactly what Sowell kept reporting from his economic research.
The government does not have the right to set a minimum or maximum hourly rate.
I am sure he would.
The nature of government depends on the character of the lawmakers.
In the US if the lawmakers are committed to our Constitution they will abide by the adage, “That government governs best that governs least.”
If the lawmakers are of a Marxist persuasion they will seek to increase government power and authority over all culture, industry, and society.
The two are incompatible.
The Marxist influence on lawmakers has overridden Constitutional controls.
The election of President Trump is an attempt by the electorate to bring us back to Constitutional government.
As I have posted before, the government can establish a legal minimum wage at any value it wishes. Whatever value it sets will always be preempted by natural law; that minimum wage, set by natural law, is now and always will be $0.00 per hour.
Correct and factual
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