Zeal For Truth

Yesterday, the minimum wage was looked at for its pure economics, and the following key points were made:

• wages are just like any price, and that amount is determined by the same mechanisms that determine other prices
• wages are not increased or decreased by employers being nice or mean
• in general, a price on wages is reached by mutual consent, where both the buyer and seller of labor are making a profit
• real wages are raised by increases in a laborer’s skills, education, experience, etc…
• making a wage floor above the value of a laborer’s skills will eventually lead to his unemployment, lower wages for workers still employed and less profit for an employer - everyone loses.

In order to look at the social and human fallout from this obviously destructive practice, many people jump immediately to the laborer’s situation. This is the most identifiable (as most of us fit this category) but actually it is important to first see the broader effects.

The Very General Effects
On aggregate, if the price of labor rises and a laborer’s skills, education and experience do not, then either two things happen. For those who argue that the laborers on the margin just get increases with everyone else, then 1) the company is forced to pay more for a less profitable, or possibly non-profitable employee. The business will fail if they continue this, removing the production of some viable good or service from the market. Or, 2) they will simply fire workers or hire less - also removing services from the market.

These are the most unseen affects, but they are the most dramatic. In both instances there are less goods and services added to the economy. As population increases (increasing demand on these scarce items) this means a decreasing standard of living for everyone, or if the wage increases are much less, probably just less of an increase or a stagnation in living standards.

The Poorest Made Poorer
Now, for the workers, they have a very visible problem in this situation. The people who fetch a labor price below whatever the minimum wage are the more unskilled, uneducated, very young, very old, disabled, unexperienced, untalented or disadvantaged in society. Because their combination of abilities does not produce something worth more than minimum wage, they are effectively banned from legitimate work. Remember the minimum wage law does not say that employers shall raise wages above a certain price; it says that there shall be no work under a certain amount.

This is because raising the minimum wage is like raising a high-jump bar - it’s a barrier one has to get over in order to get a job. Every little bit that it is raised, removes more and more people (and again, the most disadvantaged) from the market. They have no other option but to seek a wage from an illegal market of some kind - usually crime, selling drugs, illegal work or just living on welfare or charity.

The Removal Of Opportunity
Even more sad is that these people, with the training and skills they could receive on the job, even most low wage jobs, would eventually gain enough skills and experience to demand real increases in their wages.

This has been seen with teenagers, who are usually worth less than minimum wages. In fact, many states and counties have made exceptions to minimum wage for teenagers (what terrible child labor exploiters!!) because of this effect. Otherwise, these kids come out of school when they are 18, and many have few skills to offer employers - or, they believe they don’t because they have been banned from first hand experience in the market.

The Humanitarian Myth
Minimum wages are widely popular because these things are either not considered, or even more deplorably - they are ignored. The most helpful thing to the poorest in skills among us is to allow them to work, gain training and make money, rather than sacrifice them to crime or illegal work so that we all can feel better about ourselves. If we truly care about workers on the margin, then we would stop baning them from work, and instead educate ourselves before we start passing laws.