ANYTHING PEACEFUL

The Truth About the Minimum Wage

NOVEMBER 19, 2012

People don’t like to think that anyone's labor is worth less than the minimum wage. Someone might end up flipping burgers for $5.00 an hour. You might think the minimum wage is a way of paying some sort of dignity premium--hence language like "living wage." People with such good intentions look at the direct beneficiaries of these policies, say, burger flippers now making $7.50 an hour. They pat themselves on the back. But they rarely count the invisible costs: willing human beings who never get hired in the first place.

"But $5.00 an hour is not enough to live on!," they'll say. For whom? A teenager living at home with his parents? An elderly person who wants simply to stay active? A single mom with three kids? A single woman sharing an apartment with 2 roommates? Of course, not all of these people could live off of $5.00 an hour. But some of them could given the opportunity. Concerns about those who couldn't don't justify minimum wages even if we ignored the invisible costs of the policy, which include reduced margins to businesses that might otherwise grow (and hire more people).

In other words, if you take off the bottom two rungs of the income ladder, many will never climb it. That’s the effect of the minimum wage. The more cynical side of me says that’s how many politicians and the overpaid teamsters want it.

Enjoy this great video and some timeless pieces on the minimum wage by some of FEE's excellent scholars.

-The Editors

The Truth About the Minimum Wage

Further Reading:

Minimum Wage, Maximum Folly by Walter Williams

"While there is a debate over the magnitude of the effects, the weight of research by academic scholars points to the conclusion that unemployment for some population groups is directly related to legal minimum wages. The unemployment effects of the minimum-wage law are felt disproportionately by nonwhites. A 1976 survey by the American Economic Association found that 90 percent of its members agreed that increasing the minimum wage raises unemployment among young and unskilled workers. It was followed by another survey, in 1990, which found that 80 percent of econo­mists agreed with the statement that increases in the minimum wage cause unemployment among the youth and low-skilled. Furthermore,­­ whenever one wants to find a broad consensus in almost any science, one should investigate what is said in its introductory and intermediate college textbooks.­ By this standard, in economics there is broad agreement that the minimum wage causes unemployment among low-skilled workers."

 

Raising the Minimum Wage Will Do No Harm? It Just Ain't So! by Richard McKenzie

"With the money-wage hike and the reduced benefits, workers can be left worse off since the fringes and slack work demands taken away were provided in the first place because workers valued them more highly than the wages forgone for those benefits. Given the findings of his own as well as other researchers’ studies, Wessels deduces that every 10 percent increase in the hourly minimum wage will make workers 2 percent worse off."

 

The Minimum Wage: An Unfair Advantage for Employers by Donald Boudreaux

"Minimum-wage legislation prohibits wages from falling low enough to equate the number of people seeking jobs with the number of jobs being offered. As a result, the supply of unskilled labor permanently exceeds the demand for unskilled labor at the government-mandated minimum wage.

 

Minimum-wage legislation thus creates a buyers’ market for unskilled labor. And as in all buyers’ markets, buyers (employers) have an unequal bargaining advantage over sellers (unskilled workers)."

"There are three principal effects of this general increase in wage compensation:

 

1. Employers will tend to reduce non-wage compensation in an effort to minimize their overall production costs. That is, employer-provided benefits are a casualty of increases in the minimum wage.

 

2. As labor costs (generally) rise, producers will hire less labor and more capital. There is no worse time for labor generally (and unskilled labor specifically) to contemplate an increase in the minimum wage than when technological advances are reducing the cost of capital. The high cost of middle-management labor combined with rapid reductions in the cost of computer-processed information was the driving force behind the corporate restructuring of the late 1980s and early 1990s that put hundreds of thousands of white-collar workers in the unemployment lines.

 

3. Although it may appear that ratcheted-up wages benefit lower-wage employees, the appearance is deceptive. In the long run, less-skilled workers are disproportionately harmed by artificially induced increases in wages."