I work for minimum wage in California. Although admittedly I am a student, and probably do not need this wage as much as other people, I nevertheless feel the effects of the price floor. I am able to get more hours than my coworkers because I am cheaper (I am worth $8 an hour, instead of $8.50 or $9). But, the price floor inevitably precludes me from competing against more productive, new workers, who are willing to work for the same amount. I cannot lower my wage to $7.

You do see much of what is explained in this article where I work. There are a disproportionate amount of older workers. I wrote on my experiences here: http://www.economicthought.net/2009/10/why-i-don%E2%80%99t-accept-pay-raises/

When I was first exposed to Austrian economics, the whole anti-minimum wage aspect was a really large bite for me to swallow, and I thought I might share what my initial reaction to it was (as a former leftie): I didn’t think “Oh, everyone could be employed, but at such a low wage that living would become impossible, therefore the lack of minimum wage laws is evil”. Instead, my initial reaction (again, cut me some slack, I was an economically illiterate leftie) was something along these lines “If the business would just be less greedy and be willing to get by on less PROFIT, they would be able to afford the higher minimum wage and everything would be fine”

I bring this up not to shame myself, but to highlight what I believe is a common misconception, particularly (but not exclusively) among liberals, and that is this idea that there is this huge well of available funds called “profit”, which could solve all of our problems were businesses just generous enough to spread it around instead of earning it for their greedy selves. This perception may even hold a kernel of truth in certain circumstances, which is the most dangerous type of perception; it then gets generalized onto every case, and a widespread distrust of profit, per se, becomes common.

the author’s statement that “standard of living doesn’t increase with wages but rather with production”, couldn’t be more true.

the problem occurs when production is “controlled” by monopoly [or more common in our society oligopoly] and the decision is not how to compete, but how many units of production to “release” and at what price in order to maximize profits. we see this in most every industry out there.

tinas point about profit is true, but framed in this context, the ability to be “greedy” or not wouldn’t occur. in a free market, wages can be as low as the demand for labor will allow because of the direct relationship between wages and cost of product. no one is impoverished by supply and demand, they are impoverished by control of either supply and demand.

to concentrate on what some poor guy or gal earning a few bucks an hour makes and forget about our State mandated profit margins and monopoly insured top tier pay scales is the height of absurdity.

the government insures that the maid makes enough per hour to buy a big mac per hour and also insures that the ceo of citibank makes enough per hour to buy a country cottage per hour.

don’t you think it is time for libertarians to prove they are not members of the “royal” class and concentrate on where most of the controlled capital is tied up and forcibly distributed rather than where a couple of dollars are left laying aroung on the floor of some burger joint?

Some anecdotal experiences from living with “living wage” in Fanta Se, New Mexico. And I’ll be vague to protect the guilty.

This being a mountain resort town, what I’ve noticed is that there are lots of college educated white kids that want to move here. Once we added our $10/hr living wage, you tend to see more white faces. These kids move here to mountains straight out of college to bike and ski, and in the process displace local less-educated hispanic workers – the very workers the LW was supposed to help. If you’re a white supremicist, living wage is for you.

I know someone who owns a company that is fairly labor intensive. The ever changing stable of products first involves design by local craftsmen, and then mass production to replicate that design. Enter the LW, and he keeps the designers on staff here, but ships the mass production to China. He truly cares about this community, but his business would have gone broke paying the living wage for mass production. The wholesale buyers of the products have a lot of say in what prices he gets.

I know another woman who is a big supporter on all things liberal, including the LW. Interestingly, her mother owns a business in CA that is very labor intensive. The mother is looking to retire – at which point she wants to give the business to her daughter. The daughter wants to move the business to NM, but realizes that she cannot move it to her home town of Santa Fe, as the cost of the LW would make it impossible to run the business. Hypocrisy, anyone?

The supporters of the LW are fairly blind to these things (other than example #2) because they do not impact employment statistics. On top of all this, the LW makes everything just a little more expensive, which falls disproportionately on the poor. Of course, these arguments are way beyond the mental capacity of our city council.

The argument on minimum wage laws boils down to the argument would you like to be unemployed at the minimum wage or have a job for which you are paid something other than the minimum wage. This was vividly shown here in Australia in 2005 when the Howard government (classical liberal) was finally able to pass work choice laws (laws which allowed employer-employee to agree on compensation contractually). No longer were employers and employees bound to the labor rates set by law (penalty rates for working weekends, holidays, evenings, etc.) or work conditions prescribed by law. Employers and employees were free to contractually agree on the pay and terms of employment. All of a sudden help wanted signs started to appear in the windows of shops all over Australia as the above market wages and employment conditions dropped to market levels. Suddenly, all of the less skilled found jobs and unemployment dropped to under 4%. As a small business owner who struggled to pay the above market rates the change was welcome relief. The Labor Party and the unions went crazy and played on the fears of the Australian worker and unionist. Eventually it was this issue which allowed the Labor Party to finally regain power and deny the Howard government re-election in late 2007. The Labor Party and the unions are all happy and unemployment is set to soar above 6% as we go back to business as usual and Work Choices is repealed so that consenting adults in the workforce are denied the opportunity to contractually decide their compensation and terms of employment. When government laws intervene in the markeplace and establishment minimum wages and terms and conditions of employment unemployment results especially for those with less skills.

Politicians DO NOT (perhaps cannot, on a survival basis) care about “unintended consequences.” ONLY electorates have the interest, and for them (us) it is too diluted by the factor of “rational ignorance.”

I would prefer their being called (as to the politicians) “ignored consequences.” As to the electorate, I would call them “undetected consequences.”

Gonzo,

Mises disagrees ( http://www.economicthought.net/2009/09/the-economic-role-of-saving-and-capital-goods/ ):

“What elevates the wage rates paid to the American workers above the rates paid in foreign countries is the fact that the investment of capital per worker is higher in this country that abroad. Saving, the accumulation of capital, has created and preserved up to now the high standard of living of the average American employee.”

Skilled workers also tend to be more productive, which is always a quality that any business will seek. And, the word “skilled” carries with it certain connotations… the fact that they can preform work that their “unskilled” counterparts can’t.

“Standards of living do not increase with wages, but rather with production.”

As simple and straight forward as this seems to any Austrian, this simple concept remains very difficult for everyday people to wrap their minds around. When everyone is contributing to production then livings standards go up and everyone benefits – even the lowest on the totem pole.

Perhaps when one of the city counsel members is mugged or worse by one of the kids that they put out of work they will rethink their stance.

Abhilash Nambiar wrote “…if all the people prevented from working due to minimum wage laws are allowed to work for 50 cents an hour (or any wage they are willing to), then the cost of producing the things they make come down as well, which means things cost a lot less which and that stimulates new productive activities that further pushes down the price of all things, which means people who could not afford it begin to be able to afford it and that way the 50 cents an hour they condemn becomes the living wage”.

There is a lot to this, but unfortunately there are still two things that can make it not work, depending on circumstances:-

- There is no certainty that wages and prices would drop in the right proportions so that everybody could be mopped up. There are historical cases where not everybody could price themselves into work they could survive on, e.g. after the Highland Clearances and the early stages of the Enclosure of the Commons.

- There are transitional problems. Even if the effects ended up enough, people would have to survive until they got there, so the real value of lower wages under older prices does matter – it’s what they first face.

Gonzo McFly wrote “With no minimum wage employers will choose the cheaper option, unskilled workers. I am not saying that a minimum wage is the best it is but is the best we have, so far.”

Actually, no. There are a number of better ways, e.g. Negative Income Tax to make up for lower wages or the Kim Swales/Edmond Phelps idea of using tax breaks to encourage higher wages without encouraging downsizing (these aren’t adding a distortion but offsetting an existing distortion in a Pigovian way – see here for more detail). These are still not perfect, but better, unless and until Malthusian constraints hit (modern versions of Distributism would be best, apart from their serious transitional problems). The biggest single cause of the current problems is the mandating of a minimum wage and other benefits, with all the poor incentives on employers that that creates, rather than achieving the same outcomes in other ways.

Jonathan Finegold Catalán, the Mises observations you cite only bring out necessary conditions for higher real wages, not sufficient ones. The distortions I mentioned undercut actually achieving that optimum.

Tina nailed it. Why else would our socialist UK government have just promised to increase the minimum wage every year for the next five years? I groaned when I heard this and the only thing stopping me from taking to the streets is the strong possibility that we will have a Conservative government by June next year.