Politics, Not Economics Driving The Minimum Wage Argument
Wendy McElroy puts the econ back in the debate at The Hill:
It is useful to move past dueling statistics and rhetoric to consider economic principles. One basic economic principle: The market price of labor is set by the law of supply and demand which no politician can repeal. The law explains that a raise in the price of a good will result in a decline of the quantity demanded. Supply and demand impacts low-wage laborers in a particularly damaging manner for at least four reasons.First, low-wage workers who perform relatively unskilled labor are more vulnerable to being replaced by automated systems. Panera Bread has already announced it will replace its cashiers with robots by 2016. Interestingly, Panera's CEO Ron Shaich supports raising the minimum wage which is likely to increase the prices of competitors who use human labor or are "late" in automating.
Second, to hold down costs, businesses will eliminate marginal employees. If they do not or cannot, then the price of goods will be passed along to customers. Among the customers least able to absorb the hike in prices are low-wage workers.
Third, an increased minimum wage also shrinks the job market. An employer who pays $7 an hour may not be able to afford $10.
Fourth, competition for low-wage jobs increases although high-paid jobs are unaffected. Young and inexperienced employees may accept $7 as a way to enter the workplace and gain experience. But if wages rise to $10, then the job seeker competes not only with everyone willing to accept $7, but also with those who will accept $10. Especially with high unemployment, employers become more selective and less likely to hire the inexperienced or those with disadvantages such as poor language skills.
The economist Milton Friedman called the minimum wage "the most anti-black law on the books" because it raised the unemployment rate for blacks, especially black youth. The same dynamic creates unemployment for immigrants, the poor and other categories that the Minimum Wage Fairness Act is said to champion.
But debate over the act will be about election politics and not about sound economics. The political maneuvering was clear in the Senate vote. In advance of the vote, Sen. Tom Harkin (D-Iowa) threw down a gauntlet by declaring, "Who's going to vote to give these people a fair shot at the American dream? And who's going to vote against it?"
In my humble opinion $'s being Bogarted. Time to share peeps.
adambein at September 10, 2014 3:30 AM
Well, here comes the Artemis/Orion idiocy again.
Just in case you missed why the minimum wage is a BAD idea being exploited for votes...
Bread and circuses. Promise that, and get elected.
Radwaste at September 10, 2014 3:38 AM
The market price of labor is set by the law of supply and demand which no politician can repeal.
Of course, the idea that you can repeal it is what keeps politicians in business. That you'd have just as much luck campaigning against gravity is beside the point.
Old RPM Daddy (OldRPMDaddy at GMail dot com) at September 10, 2014 4:37 AM
If by politics you mean rent seekers like the SEIU union, then yes, it is politics.
Increase in wages = increase in the dues monies owed to the unions. Which means more of that money donated back to the political class that advocated for the increase.
In more civilized countries, that's called money laundering or perhaps corruption.
I R A Darth Aggie at September 10, 2014 6:44 AM
I'm trying to figure out why on earth any politician has the ability to set a minimum wage anyway. Shouldn't this be left to the economists?
gooseegg at September 10, 2014 6:46 AM
"I'm trying to figure out why on earth any politician has the ability to set a minimum wage anyway. Shouldn't this be left to the economists?"
There's no reason an economist would be able to set a minimum wage any better than a politician would. And in any case, I wouldn't want to give either an economist or a politician that kind of power. Wages, like any other kind of price, are set by what people are willing to pay. Trying to control prices by legislation or decree is like trying to control a handful of Jello. Something unexpected is always going to come squirting out.
Old RPM Daddy (OldRPMDaddy at GMail dot com) at September 10, 2014 8:55 AM
Venezuela fixes prices and look how well that is going. Just because there is a problem you want to solve, it does not mean that your "solution" won't make the problem worse. The problem here is poverty. But it is idiotic to believe that someone should be able to support a family by being a cashier at McD's or bagging groceries. Let entry level be entry level so people work their way up. A better solution to poverty is to reduce restrictions on trades, crafts, and opening a business. I have eaten in hole-in-the-wall restaurants that probably violated all sorts of health codes in NYC but fortunately I wasn't in NYC. Let the patron decide. Why should barbers have to attend 1500 or 2000 hours of classes? If I don't like my barber I won't go back.
Craig Loehle at September 10, 2014 9:21 AM
Nothing should be left to the economists, least of all the economy.
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Man walking along a road in the countryside comes across a shepherd and a huge flock of sheep. Tells the shepherd, "I will bet you $100 against one of your sheep that I can tell you the exact number in this flock." The shepherd thinks it over; it's a big flock so he takes the bet. "973," says the man. The shepherd is astonished, because that is exactly right. Says "OK, I'm a man of my word, take an animal." Man picks one up and begins to walk away.
"Wait," cries the shepherd, "Let me have a chance to get even. Double or nothing that I can guess your exact occupation." Man says sure. "You are an economist for a government think tank," says the shepherd. "Amazing!" responds the man, "You are exactly right! But tell me, how did you deduce that?"
"Well," says the shepherd, "put down my dog and I will tell you."
Conan the Grammarian at September 10, 2014 9:37 AM
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