In addition to my writing for Mises.org, my teaching, and my research, I also contribute occasional commentaries to Forbes.com. Here’s my most recent entry on the minimum wage.
Source link: http://blog.mises.org/10854/against-the-minimum-wage/
The Ludwig von Mises Institute
Tu Ne Cede Malis
Advancing the Scholarship of Liberty in the Tradition of the Austrian School
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“Unfortunately, this is a point that has to be made over and over again. No matter how they are packaged, restrictions on how labor markets operate ultimately destroy wealth and hurt poor workers.”
But this begs the question of whether all approaches to implementing minimum wages necessarily are “restrictions on how labor [sic] markets operate” – although simply mandating minimum wages really is distorting in practically all cases. As I recently commented on another post: “There are a number of better ways, e.g. … 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 [emphasis added] – see here for more detail)”. Professor Kim Swales’s analysis indicates that both employment and GDP would increase, GDP by about half the percentage of employment.
By the way, questions of what make a wage just or unjust have been addressed before, even giving rise to theoretical work. Only, just as with questions of “how many hairs make a beard”, it is tricky to get fine detail for the same sorts of reasons that there are limits to accuracy anywhere. However, it is often possible to find upper and lower bounds, and/or to determine the presence or absence of certain constraints that would affect whether an agreement could accurately be described as being freely entered into. I won’t even try to give detail here, but the Distributist Review might be a good place to start.
« Poor workers »: I would understand that someone who doesn’t works be poor, but how can somebody works and still be poor ?
That must be very discouraging for him !
Indeed, it is very discouraging to work, get paid, and still be poor. This happens a lot to people who contract a devastating illness and lack insurance. One is not poor because one’s income is low, but because the cost of meeting one’s basic necessities is comparable to or greater than one’s income.
The minimum wage debate is an interesting one, though, because there is a lot of obfuscation and confusion brought about by the emotional stakes. No one wants to be against the well-being of poor people.
The minimum wage should be repealed in my opinion, but the discussion brings up a related issue. The reader may have heard the story of KBR employees who were raped, then forbidden from seeking redress because the fine print of their contracts forbid it. KBR’s actions were found to be legal. No one supports rape, but all the same it is viewed as a government intrusion by some to legally bar companies from placing such language in their contracts, to their employees’ unwitting peril. The question is whether employee contracts should be regulated to prevent abuse by either party, or whether they should be honored in full, accepting that there will be an unscrupulous few who target the unwitting few with intent to harm under the guise of contract fulfillment.
« Low-skill workers »:
With or without a minimum wage law, it seems to me that skilled workers will always have an advantage over the unskilled.
Without minimum wage law, if unskilled workers can lower their price, the skilled ones can do it too.
Thus, at the end of the ‘battle’, there should be more unskilled workers unemployed than skilled ones.
@Gerry Flaychy:
Being low skilled is not a physical handicap, a genetically future that you can not overcome. Skills are something you can learn, usually while working.
Also, although there will always be work for low and high skilled workers in a free market, even in the same firm, for the right price. It is an economic fact.
Niko, concerning prices and wages, what I think, is that the biggest problem, the principal one, is that as long as the governmental and monetary authorities will try to control the general level of prices (price inflation control), it will be impossible to get ‘right’ prices, and thus ‘right’ wages.
So, for me, the battle over the minimum wage law is a lost of energy and time. This is a very secondary battle, more on effects and symptoms than on cause.
But, evidently, I could be wrong. Am I ?
Minimum wage laws block a path that the unskilled could use to become skilled.
“But, evidently, I could be wrong. Am I ?”
Yes, you are. Minimum wage affects the low skilled and the poor people because they can not enter the market, so they can not learn, or get the capital for education. It is a form of price control that limits competition.
“Minimum wage affects the low skilled and the poor people because they can not enter the market, so they can not learn, or get the capital for education.”
If that was true Niko the whole economy would grind to halt.
“”Minimum wage affects the low skilled and the poor people because they can not enter the market, so they can not learn, or get the capital for education.”
If that was true Niko the whole economy would grind to halt.”
It doesn’t grind to a halt because many of these people take up cash-paying jobs at companies off the record, and they don’t always make less than minimum wage because the company can afford to pay them more if they pay in cash.
” It is a form of price control that limits competition. ” Â_Niko
Wage is effectivily a price, and minimum wage law is a form of price control, but it is just about a small part of the wages: it is not like trying to control specifically all wages, of all kinds and levels.
When we compare that law with the governmental and monetary authorities control of the general level of prices (price inflation control), it seems to me to be a relativily very small problem.
With this control of the general level of prices, it is then impossible to get ‘right’ prices for goods and services, and thus ‘right’ wages. So, with or without a minimum wage law, it doesn’t make any significant difference.
That’s why, in my opinion, the battle over the minimum wage law is a lost of energy and time. This is a very secondary battle, more on effects and symptoms than on cause.
Am I still wrong ?
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