Although an increase of the minimum wage cannot be directly passed on to consumers, it certainly will have indirect effects that reduce consumer welfare.
First, since fewer laborers are now employed, aggregate production will be reduced and overall prices rise, driving down real wages and incomes of consumers.
Second, and perhaps more importantly, the allocation of resources will be distorted and production diverted from most efficient service to consumer demands by what Walter calls “the costs of rearranging things.”
Thus, for example, my favorite Chicago economist Yale Brozen tells the story of visiting middle-income in-laws in Tennessee after a 50% increase in the minimum wage in the mid 1950s and finding that they suddenly had hired a maid and gardener. The reason was that the increased minimum wage made the local shellfish cannery unprofitable causing it to close down and lay off its mainly black and female labor force, many of whom then shifted to the domestic help sector,which was uncovered by the minimum wage, driving down wage rates in this already low-paying sector even further to the point where they became affordable to middle-income consumers. From the viewpoint of consumer welfare, the minimum wage increase resulted in a more abundant supply of lower-valued domestic services at the expense of greater scarcity of higher-valued canned seafood products.
Distortions of the allocation of capital goods from higher to lower valued uses were also visible in the postwar years when increases in the minimum wage drove urban real estate owners to (prematurely) fire elevator operators and replace manually operated elevators with automatic elevators built, installed and serviced by skilled union laborers and to fire movie ushers and replace them with automatic lighting, again installed and serviced by union workers. Consumers suffered because the scarce capital required for this automation was prematurely and uneconomically withdrawn from higher-valued uses.
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Someone absolutely must cover how the minimum wage has served the interests of the public education system by destroying apprenticeship tracks. An apprentice, since he believes his apprenticeship to be an investment in his future, will work for a wage lower than raw unskilled labor. The equilibrium wage for apprentices is therefore much lower than for laborers. Imposing a minimum wage on these will not create any visible unemployment but will reduce investment into human capital and ultimately create a spreading gap between the rich, people who gained their skills prior to the minimum wage and continue to gain experience, and the poor who have no entry into skilled work.
GWB’s support for a higher minimum wage is yet another example of his pro-immigration policy. Many of these people work off the books for less than the minimum wage. Raising the minimum wage will result in more jobs for people who are willing to work off the books. Thus there will be an incentive for even more immigration from Mexico.
Corbett Coburn, this is partly true. Raising the minimum wage certainly encourages illegal immigration. Legal immigrants, however, who are covered by minimum wages, are put off by higher minimum wages, as they are among the lowest wage earners. If Bush has an amnesty and allows more legal migration, while drastically increasing minimum wages, which is basically what Pelosi and co. want, expect to see a rapid increase in unemployment and immigrants on government welfare.
Stranger, I didn’t know apprenticeships were covered by minimum wages. If they are, you may be right, if not, higher minimum wages would push more into apprenticeships. I thought apprenticeship wages were set at a percentage of minimum wages for a qualified tradesman.
“I thought apprenticeship wages were set at a percentage of minimum wages for a qualified tradesman.”
That’s still a minimum wage, isn’t it?
“If Bush has an amnesty and allows more legal migration, while drastically increasing minimum wages, which is basically what Pelosi and co. want, expect to see a rapid increase in unemployment and immigrants on government welfare.”
This outcome serves the interests of both Bush and Pelosi. The socialists use the poverty and unemployment as an excuse to get more of their supporters on the government payroll as social workers, teachers, etc. The conservatives use the public fear and disgust at the sight of so many unemployed immigrants as an excuse to get more of their supporters on the government payroll as cops, border patrol, prison guards, etc.
I wish that more people would realize that the failure of government intervention is not the result of misguided philanthropy – it is the intended result. It serves the interests of people in the government to do their jobs as badly as possible. Until their country is destroyed through bankruptcy, gangsterism and military defeat. But even then, I presume that former government hacks have a better-than-average outcome as revolutionaries, warlords, quislings, etc.
Raising minimum wage means more money on the average hour but fewer benefits for ALL employees.
Anyone who has been on a wage job for more than a year has seen this happen. Raising the minimum wage does not increase wealth. To pay for the higher wage, companies end up cutting costs elsewhere, impacting ALL employees. They may stop hiring full time employees in favor of part time employee to avoid paying benefits which full time employees receive. They may cut back overtime hours. They may reduce payment coverage of health insurance forcing the worker to pay more for it. Often they cut incentive pay for attendence, and meeting work goals. They may cut the percentage of the annual pay raise. The higher wage would mean thousands would have to quit their job early to qualify for Earned Income Credit. Reality: increasing minimum wage is like marking 75 off of a 75 watt light bulb, writing 100 on it and claiming you made the world a brighter place. In reality, you only changed the way to measure it.
Minimum Wage What a Deal!!!! I get more money for free. So, I say make the minimum wage $100 per hour. Then these minimum wage earners will be EVEN BETTER off than meager $7 the government proposes.
But wait I do not make 100 per hour so I will lose my job. I guess that isn’t a good deal.
A right and moral wage.
The only truly right and moral wage is the one negotiated between employer and employee. Period. I can see no better argument against any wage laws.
Current laws restrict me from having a more flexible work week. Any time over 8 hours is overtime which of course my employer will not pay. However my job is such that I could easily have a 4 day a week 10 hour a day job.. but NO!
Thanks to all the current fascist like job laws.
Ah well.. i will just be more lazy at work instead.
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