Wednesday, December 31, 2014

Minimum Wage Means Minimum Level For Entry

The minimum wage is often held as a principle of basic fairness and justice. The only problem is that it is grossly unfair and incredibly unjust. The more effective it is, the more unjust and unfair it is.

Take these questions:

An employer has a position that produces roughly ten dollars an hour in value (excluding taxes and whatnot). He pays the worker nine dollars an hour, netting the employer one dollar in total net value per hour. Note that this may not be revenue, as many jobs, like janitors, deliverymen and tech staff do not, themselves, generate revenue, but they bring clear value to their jobs.

Now let's have the legislature, in their benevolence, increase the minimum wage to fifteen dollars an hour. The value of the work is now a negative five dollars an hour - it costs more to have the work performed than it is worth. What would a reasonable employer do? If the position is non-essential, the position will simply be eliminated.  If the position is essential, the business may shift the work onto more valuable employees, decreasing their wage so that the higher-value work is subsidizing the lower-value work. The employer may rely on inflation and increase his prices to reduce the value of the pay increase, or the business may simply have to cease operations in the area impacted by the minimum wage increase.

Now let's look at the question from the other side:

Take a young man who was cheated out of an education by his government school. His limited knowledge and skillset make him only employable for very low wages. But working at those wages will help him build a reputation, increase his skillset and make him slightly more employable. Likewise, his slightly more skilled job at a slightly higher wages builds his reputation and skillset. Eventually, he becomes a moderately or highly skilled worker able to support himself and a family.

But the legislature again, in their 'benevolence', raises the minimum wage above what he could initially earn. The government closes every door available to him at the same time, trapping him in permanent poverty and hopelessness.

How are these outcomes - loss of quality of life work, companies, and positions, and the condemnation to permanent poverty fair or just outcomes?

The arguments in favor of raising the minimum wage are not much better. The arguments are:

1) People should not have to support their families on such a low wage. Unfortunately, this gets the situation largely backwards - most minimum wage earners are not supporting a family, but are being supported by one. Their own wage is supplemental income, which will give them financial management experience before they set out on their own. And those unfortunate few that are trying to support a family on the minimum wage have made a large number of bad life choices. Is it worth cutting jobs and condemning many people, including these few, to permanent poverty in order so that a small number of them can do slightly better?

2) The minimum wage, the claim goes, does not do much, if any harm. But the studies that have come to the conclusion have analyzed the wage increase in terms of the entire job market. Even if you eliminated all of the existing minimum wage jobs today, you would see only small upticks in prices and unemployment. But when you look at the market that is at or close to the minimum wage before an increase, you do see lots of serious impacts among the market - unemployment spikes among the affected group, and permanent reductions in employment as well. (Today, the wage largely impacts teenagers) A little poison is harmless too, but that doesn't mean drinking a gallon of pesticide is a good idea.

Minimum wage laws are simply another form of price controls, just on labor. They do substantial harm to the very people they are supposed to help, and do only temporary good to a small number of people. It's basically the classic definition of spite- burning down your house to get rid of a rat, done by self-righteous moral grand-standers who care more about feeling good about themselves than helping people.

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