- Capitalism and Alternatives -

Minimum wages and how to pretend to care.

Posted by: Gee ( si ) on March 29, 1999 at 16:19:07:

In Reply to: Minimum wage posted by What Tiler on March 29, 1999 at 14:54:28:

Minimum wages are one of those popular arguing points.

Just as a worker will only offer his labor time for a wage he finds beneficial, so an employer will only be willing to pay workers a wage that permits him to earn a profit. The higher the wage, the fewer workers the employer will employ (assuming the same return). This is what economists mean when they invoke the law of supply and demand.

Unfortunately, there are hundreds of thousands of low-skilled workers and potential workers who will not find jobs at a higher wage rate. Why and where is another issue.

However, supporters of an increase do not accept this well-established economic view. Instead, they claim the increase is a way to provide a livable wage and to fight poverty.

But, the question must be asked: If raising the minimum wage from, $5 to $6 (for instance) is so good for low-income people, why stop there? Why refrain from an even greater generosity, an even more livable wage, and an even greater fight against poverty? Why not raise the minimum wage to $10 or even $100 an hour, so everyone can be well-off!

This is no idle question. After all, the same reasoning that justifies an increase to $6--that Congress or Parliament can generate prosperity through legislation--certainly also justifies an increase to $10 or more. I'll repeat, *the same reasoning*. The first reason is reality. wealth must be created before it can be distributed.

The reason politicians and other supporters of an increased minimum wage law don't follow their own argument to its logical conclusion is political, not economic.

Were the minimum wage raised right now to $10 or more, millions of middle class working Americans would report to work tomorrow only to find that their jobs were no longer available to them (and their employers unable to operate). And they would know immediately that the new minimum wage law was responsible. Political heads would roll. If the nation avoided an outright citizens' attack on Washington, then, at the very least, those in office who supported the new minimum would find themselves soundly beaten in the next election.

To sum up this point - the minimum wage laws are a political trick to win votes. The costs of the increase, rest assured, are not magicked away. They return in increased unemployment and increased costs in producing things. ie, some people lose jobs because an employer no longer finds it profitable to employ people, where those costs are borne by the employer then either the price to the consumer goes up (ie it reduces other poeples income buyer power) or the ability of that company to reinvest (the reduced profits) is compromised, along with the life expectancy of that company. Usually its a combination.

With any law always ask "how much and at whose expense?" whether you then think its good or bad is therefore just an opinion.

I believe the majority of politicians clearly understand this. While some politicians may genuinely believe that their efforts will help their constituents, this naive view is rare. The law of supply and demand cannot be repealed. Every increase has reduced employment at the lowest end of the pay scale. But the broad middle class of working and voting Americans has not been *directly* affected. I imagine the same to be true in Europe.

Studies (in the USA) suggest that for every 10 percent increase in the minimum wage, a minimum of 100,000 jobs are lost. There may be asmall increase in jobs for factory machine producers (to replace these people).

But the vast majority of people adversely affected by the increase are either young, illiterate, or among the lowest ranks of the socio-economic ladder. They generally don't vote, don't work on political campaigns, don't contribute campaign money, don't write letters-to-editors, and don't otherwise make themselves heard politically. In short, these people just do not count in the political process. So politicians and special interests can posture as the saviors of these low-income people while actually destroying their prospects for attaining upward mobility.

This is the reality behind the feigned concern and compassionate rhetoric of politicians and other supporters of a minimum wage increase, and it is a very ugly reality, indeed.

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