I’m looking for some knockdown arguments against minimum wage laws. Shorter and simpler the better, so that even economically illiterate statists with short attention spans will understand. Preferably based on consequences rather than ethics.
I also need a good response to the objection “Minimum wage workers can barely afford to live as it is! Without minimum wage laws, employers would pay them even less!”
Give it your best shot! TIA.
Statist: Minimum wage, blah, blah …
You: I agree that people should be paid more, but I wouldn’t point a gun at anybody to make that happen. Would you?
Ask them what happens if they raise the minimum wage and then unemployment goes up because companies cannot afford to hire as many employees at the minimum wage?
Yeah good argument, but I need something more specific and not based on ethics. Why would ‘society’ be better off without minimum wage laws?
I know that’s not what you were looking for, but I don’t think utilitarian arguments are persuasive.
Why not raise the minimum wage to $10,000 an hour and everyone will be rich?
An employer will only hire someone if the profit he brings minus the wages he gets is a positive number. If the minimum wage is too high, he just won’t hire him. This has happened over and over. It is why we no longer have elevator men and gas station attendants. Until very recently, the island of Samoa had 2 tuna factories that were employing most of the island. Over the protest of Samoa’s political leaders, the US Congress passed a minimum wage law for the Samoa. Instantly both factories left the island. Now they are all unemployed.
Bottom line, the minimum wage leads to more UNEMPLOYMENT.
As evidence, isn’t it odd that unions are always fighting for a minimum wage when their members earn much more than minimum wage? No it’s not odd, because they want unskilled guys OUT OF THE WORK FORCE TOTALLY.
So, rather than helping the poor have more money, it leads to them having less. So that the whole idea is self defeating.
Plenty of sources on this site on this topic.
I mean the question is: when does minimum wage really start to price most people out of the labor market?
Yes, this is good, I always try to focus on the unemployment, which normally goes unseen.
If the minimum wage was $100/hr, most people who earn less than that now would be unemployed, but not all. The marginal profitability of some individuals would rise and they would be paid minimum wage rather than let go. Therefore the people who are currently being overpaid at minimum wage - and this could be a large group of people - would suffer pay cuts. What do you say to them?
If employers really did have huge coffers full of money and were forced to empty it by a higher minimum wage, what would happen? The nominal wage would go up but so would the nominal price of everything else. Want to have all wal mart employees paid 10 dollars an hour instead of 5? Get ready to pay double for cashier/stocking services!
To make people richer you gotta produce MORE STUFF. This is basically only possible with CAPITAL INVESTMENT. The socialists can’t even get their own wealth redistro argument right.
From Thomas Sowell’s book, Basic Economics (pp. 210,211):
Just as we can better understand the economic role of prices in general when we see what happens when prices are not allowed to function, so we can better understand the economic role of workers’ pay by seeing what happens when that pay is not allowed to vary with the supply and demand for labor. Historically, political authorities set maximum wage levels centuries before they set minimum wage levels. Today, however, only the latter are widespread.
Minimum wage laws make it illegal to pay less than the government-specified price for labor. By the simplest and most basic economics, a price artificially raised tends to cause more to be supplied and less to be demand than when prices are left to be determined by supply and demand in a free market. The result is a surplus, whether the price that is set artificially high is that of farm produce or labor. Minimum wage laws are almost always discussed politically in terms of the benefits they confer on workers receiving those wages. 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 workers’ productivity worth that amount - and, if it is not, that worker is unlikely to be employed.
Because the government does not hire surplus labor the way it buys surplus agricultural output, a labor surplus takes teh form of unemployment, which tends to be higher under minimum wage laws than in a free market.
Unemployed workers are not surplus in the sense of being useless or in the sense that there is no work around that needs doing. Most of these workers are perfectly capable of producing goods and services, even if not to the same extent as more skilled or more experienced workers. The unemployed are made idle by wage rates artificially set above the level of their productivity. Those who are idled in their youth are of course prevented from acquiring the job skills and experience which could make them more productive - and therefore higher earners - later on. That is, they not only lose the low pay that they could have earned in an entry-level job, they lose the higher pay that they could have begun earning after gaining experience on that job. Younger workers are disproportionately represented among people with low rates of pay. Only about two percent of American workers age 25 and over earn the minimum wage.
I think that pretty much sums it up.
Clayton -
Technically, when the minimum wage is higher than any labor sector’s market wage rate.
So, if we knew what that was, we could figure how much damage raising the minimum wage would do.
^he means wages need to be flexible all the way down to zero (or maybe even negative) in order for full voluntary employment. Consider trainees who represent a risk to an employer initially b.c. of the cost of training them.
So then it’s a trade off. For every dollar you guarantee someone in wages, you make sure that a certain group of people will not be able to find employment at that number. So how much unemployment is one willing to tolerate to make sure that current employees are guaranteed a certain level of income?
Use the example of American Samoa:
and
http://www.realclearmarkets.com/articles/2009/05/the_minimum_wage_and_its_emplo.html
For proof.
You can also point out how labor unions have cost American GDP more than 50 trillion in growth, See:
http://www.mackinac.org/4828 and http://mises.org/daily/1685
Although not directly (maybe?) related to minimum wage you could draw corollaries.
I usually follow a sequence of questions like these two:
Do people buy less of a good when the price is higher or lower?
Do people (employers) buy less of a good (labor) when the price is higher of lower?
This usually shifts the burden of proof to the opponent who must demonstrate that labor isn’t a normal good or that employers act differently than other consumers in a relevant way.
Whether the minimum wage causes unemployment is irrelevant to the socialist position. Most real socialists advocate unemployment insurance alongside minimum wage laws, so saying “this will raise unemployment” doesn’t really address the socialist position.
The socialist position is that every person has at a minimum a right to the basic goods required to live until old age. In a socialist system, people who can’t find a job get unemployment checks at least at the level of survival, and the minimum wage is set at above this level of survival to provide incentive to work.
Most people want to live at above the level of survival, so a relatively small percentage of people choose to live on the unemployment checks who could otherwise find work.
This is not Utopian speculation but is actually policy in much of the developed world, believe it or not. Just saying, you need to understand the socialist position if you wish to contest it…
Most socialists would argue that the right to life is the foundation of the right to property and hence precedes it, and that this justifies coercion against property in the defense of life, and furthermore that guaranteeing everyone has food/clothes/shelter has net effects of creating more general wealth and less coercion in society than not doing it.
Other socialists would claim that the unemployment checks could be funded by the sale of collective resources such as mineral rights or the taxation of legitimate externalities, which they would consider to be non-coercive.
F.Y.I.!
Benjamin, that’s a good point.
They create barriers of entry for the labor market but subsidize those who are excluded by the barrier.
The right to life is simply another property right.
Minimum wage in the United States is above $7/hour. That’s one of the highest in the world. Are you prepared to condemn your fellow socialist Europeans for having minimum rates set at much lower?
In Socialist China, I believe it’s about 50cents/hour (and that’s after 20 years of economic liberalization). Yes, I see your point about the socialist position of a right to life.
Also, If $7/hour is your “survival point” for setting minimum wage, what will be the unemployment benefit? And don’t tell me also $7 without thinking it though.