Daily Show host Jon Stewart recently weighed in on the recent Senate vote to raise the minimum wage. He laments the fact that any increase was voted down, suggesting that those in poverty could really use the “bonus.”
What he misses is that this artificial price floor effectively eliminates anyone whose productivity level is lower than the minimum wage, from the labor market. In other words, an employer wanting to stay in business will pay the employees at the level of which they are productive. Fiat legislation does in no form or fashion raise the productivity of an employee. Therefore the same individuals that minimum wage laws are targeted to help — typically teenagers, ethnic minorities and seniors — are the same ones hurt by it as their productivity level remains unchanged. Thus they are priced out of the market.
And as an aside, historically labor unions typically favor minimum wage laws as it erects a barrier of entry and protects their jobs from additional competition (cui bono).
Be sure to also check out Don Boudreaux’s latest analogy contrasting the minimum wage with the sale of used cars — it is a zinger.
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Howard Dean recently made the claim that “Raising the minimum wage won’t hurt jobs,” and that any claims to the contrary are just “economic mumbo jumbo.”
http://www.washtimes.com/national/20060627-112127-6960r.htm
Oh dear. . .
There are pros and cons to every policy.
Tim,
Your singling out Stewart in an attempt to make your point re: “efficacy of min. wage hikes” leads one to believe you are “tone deaf” to Irony.
If you need any clarity on the point he was making, you should give him a ring.
That you would choose to abuse one of the very few potential allies, to be found within the MSM, of Austrian Econ, strikes me as odd.
What’s your real beef w/ said Stewart?
“That you would choose to abuse one of the very few potential allies, to be found within the MSM, of Austrian Econ, strikes me as odd.”
Really? I too greatly enjoy the Daily Show – but it’s in spite of a not so subtle leftist slant. Is there anything in particular on which you base the idea of Stewart being a potential Austrian econ ally?
Stewart is a skeptic of the status quo, generally. At least he’d give an Austrian Econ book that had mass appeal a shot.
The funniest thing I ever saw on “The Daily Show” was his skewering of Nancy Pelosi’s smug self-righteousness in the wake of the Abramoff scandals;
http://www.libertyguys.org/articles/detail.asp?ArtID=1203
The first minimum wage laws applied to women only, then were extended to children. This effectively kept them from competing with (union) men.
Later, minimum wage laws and compulsory unionism were used against blacks.
Anybody who pimps for the minimum wage now should be asked to explain away those inconvenient truths.
Vince! You just reminded me of “Saturday Night Specials”! Gun control is another ploy deeply rooted in elitism and racism.
Just imagine if the minimum wage…excuse me -”bonus” was raised to $20 per hour or $200 per hour…
The resulting unemployment would be astounding!
Chris,
That will never happen because at a minimum wage of $20, the unions will collapse, and they know it. They calibrate the minimum wage increases demanded SPECIFICALLY to keep up their wage scales, reduce low-wage competition, while being careful not to raise it high enough to start costing them jobs.
Curt, most seemingly “grassroots” campaigns for or against one thing or another are started off and funded by wealthy elites.
For one example, the Robert Wood Johnson Foundation has as an implicit goal the reintroduction of alcohol prohibition. Look at any bill introduced to change state laws to tighten access to alcohol, and the RWJF will be a large contributor. Similarly, they lobby at the federal level to pass laws to force the states to tighten their regs – very tidy. RWJF’s money came from healthcare – don’t you think it would be better spent trying to fix that mess? Instead, the use their billions to erode the rights of ordinary folks to engage in consensual, legal behavior. Elitists.
Vince,
Your above post is a topic you should definitely run with. So many are trained to believe that nothing but the very purest of unalloyed altruism ever issues forth from those “great” Foundations.
You obviously have a headstart that you should expand upon and post the results for wide viewing.
You’ll find a few co-travellers along that path, but, still bring a Machete.
Will do!
It’s a convincing argument, but it seems to me to assume that the present minimum wage is an accurate reflection of the base productivity an unskilled worker can provide. I think there is an asymmetry at work which tends to force their wages below the actual value. Clearly a minimum wage of $200/hr would be disastrous, but it doesn’t automatically follow that lower is in all cases better. The logical extension of that argument would be the abolishment of minimum wage. Would that really be best for society? If so, the article certainly doesn’t explain why.
Nerdbeard,
Perhaps it is because most of the writers here are Misesians they assume too much – the minimum wage is a marginal economic phenomenon, and arguments against it on economic grounds are dismissed at great peril.
A wage is an amount of money paid to a person that is equal to the marginal revenue product of their labor. In other words, I earn a wage of $1, $2, $3, $10, $100, $1000 or more because that is what that hour’s worth of my labor is worth to him, given my productivity.
What is unspoken is that some people, particularly young people, are at first not very productive. Their labor might only be worth $0.50, or $0.01, or even be negative per hour.
Also, there are marginal tasks (check your oil, mister?) that have a low marginal value.
If the government makes payment of an economic wage illegal in these cases, by definition employers will seek less of the labor utilized. In short, the government puts low-productivity people out of jobs.
Now, no one wants people to have to live at a low wage forever, and maybe these people will find other work at higher wages, now or eventually, but the opportunity that a low-wage, entry-level job offers – a first step on the economic ladder for some people – is gone, zish.
Minimum wage laws eliminate both these jobs and the low-productivity workers from the job market, causing unemployment.
Of course, demand for labor is somewhat inelastic, and is rarely available at rates neatly equal to the marginal revenue product of labor, so studies that claim a ‘small’ or ‘negligible’ effect of raising the minimum wage need to be taken apart and their assumptions examined.
But, more important, we have to get minimum-wage proponents to admit to the economic veracity of the problem, whether or not they agree it is ‘fair’ or ‘just’.
Some people’s labor is simply not economically valuable enough to an employer to justify a minimum wage (this assumption is also demonstrated by the entire social welfare apparatus, i.e.; these people’s productivity is insufficient to sustain them, so they must be subsidized, but I digress). Outlawing the payment of an economic (market) wage to such people destroys these marginal productivity jobs, and the opportunities these jobs represent.
His next segment, on videogame violence, is great stuff, though.
“And as I stood there, watching my kids play those violent videogames–helpless to do anything–I couldn’t help but wonder where the system had failed.”
Minimum wage is surely a socialist-based idea; it has spread all over Europe and it won’t go quickly as works finely as a collector for political consensus, and that is well beyond any consideration about “fairness” or “justice”.
A way out from part of the negative outcome of a minimum-wage policy could be a vast liberty of firing less productive workers for them to distribute within less-skilled jobs and gather best workers to best-paid ones; this will partly off-set the minimum-wage due production losses by an increase of productivity in best performing jobs.
This could surely be just a second-best, but can really educating whole Europe to libertarian virtues be more viable to cope with minimum-wage policies?
I would be okay with minimum wage on the condition that every unemployed person be issued an ak47 and the addresses of the politicians responsible for passing labor laws.
It’s simple, really (okay, *maybe* it’s simple). Raising the minimum wage does not increase the productivity of marginal workers. Thus the “extra money” has to come from somewhere else in the economy. Employers will cut back *somewhere* to make up the difference, be it hiring fewer minimum wage workers, giving existing workers greater duties and responsibilities, or spending less money somewhere else in the business (and thus causing an economic chain reaction where the loss of productivity is transferred to somewhere else).
It’s no different than the situation a family faces when confronted with higher prices on their goods and services.
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