The Minimum Wage Law

April 25, 2010

The Minimum Wage
The minimum wage law is at best an excellent example of the simple minded stupidity of our lawmakers. Or perhaps it is their cynical deference to the voting power of labor unions. It certainly illustrates the naively simplistic thinking of the altruistic voters who elect those lawmakers.
Let’s say the law sets a minimum wage of $5 per hour.
The law, on the surface, is supposed to give a helping hand to the unskilled and inexperienced workers who would, in the free market, earn less than $5 an hour. Of course it doesn’t achieve that. Since employers would take a loss from the increased wages, they could simply fire those employees. The fact that the employees have chosen to work at $3 an hour rather than not work at all shows their preference. So neither the employer nor the employee wants such a law. Who does want this crazy law?
The labor unions very much want a minimum wage law, and continually demand increases of the minimum wage level in line with price inflation. Their motive is not obvious but yes, even the unskilled workers compete with all other workers and so reduce all wages. Reducing the pool of available labor in any way makes it easier for the unions to demand higher wages. They base their reasoning on the idea of Karl Marx that all employment is exploitation, that they are “wage slaves”. Never mind that the $3 an hour wage is a voluntary agreement between employer and employee. Voluntary slavery is a self-contradiction.
The best way to illustrate the illogic of the minimum wage is to ask ;
Suppose that there were no minimum wage. Unemployment would be a few percent; those temporarily seeking their next job.
Suppose the minimum wage were $1,000 per hour. Yes, there would be a few people employed, but nearly all of us would be permanently unemployed.
Government unemployment statistics don’t reflect permanent unemployment, but I would guess that there are between 5% and 10% of potential workers permanently unemployed as a result of our ever rising minimum wage.
The effective minimum wage is actually much higher than the nominal minimum wage, because an ever-growing list of mandatory fringe benefits adds to the cost of each employee to an employer. There are also a growing number of people in “temporary” or “part-time” employment to avoid the cost of mandatory fringe benefits. My last job was “temporary” and lasted the two years until I turned 65 and retired.

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