Economic Principles – Minimum Wage:

“Unfortunately, the real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum wage, because they lose their jobs or fail to find jobs when they enter the labor force. Making it illegal to pay less than a given amount does not make a worker’s productivity worth that amount—and, if it is not, that worker is unlikely to be employed.”

Thomas Sowell

I wrote this in August of 2014. Only the dollar amounts have changed.

Minimum wage is a subject meant to stir emotions by politicians who are seeking re-election. Nothing is gained by minimum wage other than the exploitation of the poor. Yet, to listen to our elected officials, you would think the opposite is true. Take our current President for example:

“They (Republican’s) blocked a bill…A bill that would have gradually raised the minimum wage from $7.25 an hour to $10.10 an hour.  By preventing even a vote on this bill, they prevented a raise for 28 million hardworking Americans.  They said no to helping millions work their way out of poverty — and keep in mind, this bill would have done so without any new taxes, or spending, or bureaucracy.  They told Americans like the ones who are here today that “you’re on your own” -– without even looking them in the eye.”  – President Obama 2014

Here you have rhetoric at its finest. All Republican’s want to keep hardworking American’s poor. If it wasn’t for them, wages would rise and you would no longer live in poverty. Don’t blame me or the Democrat’s, we are on your side.

But is that the truth, or is that just what sounds good? Is there a reason why the bill was blocked? Is there any concern about an increase having a negative impact?

The story gets even more believable when you bring in economic “experts” to back your ideology. The most famous of course is Paul Krugman. In a NY Times opinion piece Mr. Krugman gives us his idea about why raising the minimum wage has no negative effect on jobs:

“That’s a subject of continuing research, but one theme in all the explanations is that workers aren’t bushels of wheat or even Manhattan apartments; they’re human beings, and the human relationships involved in hiring and firing are inevitably more complex than markets for mere commodities. And one byproduct of this human complexity seems to be that modest increases in wages for the least-paid don’t necessarily reduce the number of jobs.” – Paul Krugman

Similar to the President, Mr. Krugman appeals to the human element of economics. How dare you reduce humans to ‘mere commodities?’ Mr. Krugman is backing his argument with a 2013 study conducted by John Schmitt. The study even mentions Mr. Krugman by name. The main idea is that small increases in minimum wage have little or no effect. Emphasis on small.

Finally, a group of economists in 2006 (over 650) signed a document calling for a raise in minimum wage. This gives politicians an “official” license to say something like ‘most economists agree, raising the minimum wage is a good idea.’ Here is an excerpt from the statement:

“The minimum wage has been an important part of our nation’s economy for 68 years. It is based on the principle of valuing work by establishing an hourly wage floor beneath which employers cannot pay their workers. In so doing, the minimum wage helps to equalize the imbalance in bargaining power that low wage workers face in the labor market. The minimum wage is also an important tool in fighting poverty.” 2006 Economic Policy Institute Report

These are very convincing arguments that set up like this: Republicans are evil and want to keep the poor impoverished; they are to blame for all your troubles; if you are against minimum wage you are treating humans as commodities; there is no harm in raising the minimum wage; economists agree minimum wage is essential to fighting poverty; the Democrats are here to save the day.

What are the answers to such arguments? Is there an opposing view? Can we find truth? Can we have a conversation around this? Below I present other viewpoints to counter the above arguments around minimum wage.

Basic Economic Philosophy:

“One of the simplest and most fundamental economic principles is that people tend to buy more when the price is lower and less when the price is higher. Yet advocates of minimum wage laws seem to think that the government can raise the price of labor without reducing the amount of labor that will be hired.” Thomas Sowell

“Minimum wages have their greatest unemployment impact on the least skilled worker. After all, who’s going to pay a worker an hourly wage of $10 if that worker is so unfortunate as to have skills that enable him to produce only $5 worth of value per hour? Who are these workers? For the most part, they are low-skilled teens or young adults, most of whom are poorly educated blacks and Latinos.” Walter Williams

“Raising the minimum wage is a formula for causing unemployment among the least-skilled members of society. The higher wages are, the higher costs of production are. The higher costs of production are, the higher prices are. The higher prices are, the smaller are the quantities of goods and services demanded and the number of workers employed in producing them. These are all propositions of elementary economics.” – George Reisman

How Statistics can be manipulated: In answer to the study by John Schmitt

“[B]ecause there is always time between when a minimum wage is proposed and when it takes effect, its impact can be all but hidden as employers take different actions leading up to the new minimum wage than simply waiting for the new wage to take affect and firing everyone then. Furthermore, compensation is not merely pay: workplace comforts, vacation days, overtime hours, and other benefits could be affected without employers resorting to firings.” L.A. Liberty

Advanced Economic Thought:

 “Real wage rates can rise only to the extent that, other things being equal, capital becomes more plentiful. If the government or the unions succeed in enforcing wage rates which are higher than those the unhampered labor market would have determined, the supply of labor exceeds the demand for labor. Institutional unemployment emerges.” – Ludwig Von Mises, Human Action

Rhetoric and Politics:

“Thinking has become so emotional and so politically biased on the subject of wages that in most discussions of them the plainest principles are ignored. People who would be among the first to deny that prosperity could be brought about by artificially boosting prices, people who would be among the first to point out that minimum price laws might be most harmful to the very industries they were designed to help, will nevertheless advocate minimum wage laws, and denounce opponents of them, without misgivings.

Yet it ought to be clear that a minimum wage law is, at best, a limited weapon for combating the evil of low wages, and that the possible good to be achieved by such a law can exceed the possible harm only in proportion as its aims are modest. The more ambitious such a law is, the larger the number of workers it attempts to cover, and the more it attempts to raise their wages, the more certain are its harmful effects to exceed any possible good effects.

The first thing that happens, for example, when a law is passed that no one shall be paid less than $106 for a forty-hour week is that no one who is not worth $106 a week to an employer will be employed at all. You cannot make a man worth a given amount by making it illegal for anyone to offer him anything less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low wage you substitute unemployment. You do harm all around, with no comparable compensation.” – Henry Hazlitt, Economics in One Lesson

Finally, Milton Friedman explains: (Click here to watch the video.)

If the topic of minimum wage is not political, then what is it? Clearly, it is meant to stir emotion to garner votes for the upcoming elections at the expense of the poor. What is in our best interests as a society when it comes to this topic? What do you believe is th

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