• Tag Archives minimum wage

  • Debunking the Myth That Minimum Wage Laws Are ‘Progressive’

    Posted on by Azrael Comment

    The minimum wage is a sort of litmus test. And not only for economists. For social justice advocates, too.

    Forget, for a moment, the economics of it. In essence, minimum wage legislation imposes compulsory unemployment on the poor, the unskilled, racial minorities, the young, the physically and even more so the mentally handicapped—the very people all men of good will most want to help. Before the advent of this law, the unemployment rate for white middle-aged people and black teens was just about the same. Now, the latter are unemployed at quadruple the rate of the former.

    For the moment let’s just discuss the ethics and logic of the minimum wage. I now make you an offer: come work for me: you can wash my car, clean my house, etc. I’ll pay you $3 per hour. If I were serious about this offer, I could go to jail for making it. If you accepted it, you would also be breaking the law, but you would not get more than a slap on the wrist, since the judge would think I was exploiting you. Did I violate anyone’s rights? Did I violate your rights by making you this offer? Hardly.

    As we should know from pure logic alone that an offer of employment such as I am now making to you, theoretically (I do not welcome being arrested), cannot help but improve your economic welfare. It is a proposal of an option you simply did not have before I made it. If you reject it, you are no worse off than you otherwise would have been. If you accept it, this job necessarily benefits you, at least ex ante (looking ahead), since, presumably, you had no better alternative than this one. I am your benefactor, not your exploiter.

    Now for the economics of it. Some people believe the minimum wage is like a floor; raise it, and pay scales rise, particularly those at the lower end of the economic pyramid. If this were so, why be so modest as to want to raise it, only, to $15 per hour. Why not $1,500 hourly? Then, we would all be rich! We could stop all foreign aid to poor countries. We might just tell them, instead, to install a minimum wage decree at a high level.

    No, the minimum wage is more like a barrier over which you have to jump in order to get a job in the first place and then keep it. The higher this hurdle, the harder it is for you to jump over it. Let us return to my offer to you at $3 per hour. Suppose you are very unskilled. Your productivity, the amount of revenue you can add to my bottom line, is only $3 per hour. If I hire you at $15, I’ll lose $12 per hour. Thus, I won’t hire you if I want to maximize profits. If I do so anyway, I will risk bankruptcy. Which is better for you: no wage at all, zero, nada, with this law in place? Or $3 per hour, with no such enactment? Clearly, $3 per hour is better than nothing.

    Here are three objections to the foregoing. First, if you were totally unemployed, you might be eligible for welfare; if employed at a low wage, likely not. So the minimum wage, at least with a welfare program, is a benefit to the poor. True enough. But, here, we are not holding fast to ceteris paribus (all else equal) conditions. If we want to clearly see the economic effects of this regulation, we have to hold all else constant. Assume, either, no welfare at all, or, an equal amount of such payments whether on the job or not. Then, we can see clearly that something is better than nothing, and, also, that something plus a welfare payment is greater than nothing plus the same welfare payment.

    Second, there is the claim of monopsony, which is a single buyer of labor, or, oligopsony, a situation in which there are only a few employers. This is a divisive concept within the dismal science (economics), which we need not discuss here. But one thing is clear: this applies, if it does at all, only to firms which employ highly skilled workers. For example, the NBA, the NFL, MLB and other such sports teams; to doctors, engineers, lawyers, computer experts, with very narrow specialized skills which can be utilized only by one or a very few companies. But these people earn vast multiples of the $15 per hour many are pushing for. Thus, this objection is not even relevant to our present discussion.

    Third, several economists have not been able to find the unemployment effects implied by this directive in their econometric studies. Response: they should look a little harder, probe a bit deeper. They have not done their full homework.

    The minimum wage law should not be raised, it should not remain constant, it should not be lowered. It should be ended, forthwith, and salt sowed where once it stood. It’s proponents may have good intentions, but in practice it is a malicious attack on the least of us.


    Walter Block

    Walter Edward Block is an American economist and anarcho-capitalist theorist who holds the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at the J. A. Butt School of Business at Loyola University New Orleans. He is a member of the FEE Faculty Network.

    This article was originally published on FEE.org. Read the original article.


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  • Minimum Wage Hikes Kick in Across the Country—at the Worst Possible Time for Small Businesses

    Posted on by Azrael Comment

    2020 was one of the worst years in modern American history for small businesses. And now, thanks to a wave of minimum wage legislation that kicked in on January 1, things are about to get even worse.

    Make no mistake: small business owners are already seriously hurting. 

    When state and local governments responded to the outbreak of COVID-19 in the spring with harsh lockdowns and restrictions, businesses were forced to shutter. Many in the restaurant and hospitality industry remain shut down many months later, or were briefly allowed to reopen then shut down again this fall. Meanwhile, much of the taxpayer-financed aid meant to help these businesses was instead captured by big corporations or lost to fraud and waste. 

    To add insult to injury, thousands of small businesses were vandalized and looted during the summer unrest after the death of George Floyd. (No, insurance doesn’t eliminate the harm).

    At least 100,000 small businesses that were forced to close in 2020 will not reopen, according to Yelp. In a recent survey, almost 60 percent of small business owners said that they don’t expect their enterprise to survive through June 2021.

    Many of these same small businesses teetering on the brink of collapse are about to get slapped in the face with surging labor costs. A total of 20 states had minimum wage hikes take effect this month as part of scheduled ramp-ups.

    “New Mexico will see the largest jump, adding $1.50 to its hourly minimum and bringing it up to $10.50,” the Hill reports. “Arkansas, California, Illinois and New Jersey will each increase their minimum wages by $1.”

    Additionally, many localities have enacted area-specific minimum wage hikes. For example, Flagstaff, Arizona just raised its minimum wage to $15 an hour while Belmont, California just upped its rate to $15.90 an hour.  

    These might not sound like massive hikes in absolute terms, but you have to think of it like this. Payroll is often one of the largest expenses small businesses have—and it may have just arbitrarily spiked by 5 to 15 percent.  

    The timing here could not be worse. 

    “A dramatic increase in the minimum wage even in good economic times has been shown to be harmful,” Employment Policy Institute Managing Director Michael Saltsman said. “In the current climate, for many employers it could be the final nail in the coffin.”

    And employees will suffer perhaps just as much as employers. Even though they’re ostensibly meant to uplift workers, increases in the minimum wage always and inevitably hurt more than they help.

    Why? A wage is important for the living standards of the worker, but that isn’t its only important aspect. A wage is a price. Prices are essential for order in an economy, so price controls throw markets into chaos.

    “By the simplest and most basic economics, a price artificially raised tends to cause more to be supplied and less to be demanded than when prices are left to be determined by supply and demand in a free market,” famed free-market economist Thomas Sowell explained in his book Basic Economics. “The result is a surplus, whether the price that is set artificially high is that of farm produce or labor.”

    “Making it illegal to pay less than a given amount does not make a worker’s productivity worth that amount— and, if it is not, that worker is unlikely to be employed,” Sowell writes. “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 either lose their jobs or fail to find jobs when they enter the labor force.”

    Thus, as free-market economist Murray Rothbard put it, the minimum wage amounts to outlawing jobs:

    “In truth, there is only one way to regard a minimum wage law: it is compulsory unemployment, period. The law says: it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result.”

    So, it’s no surprise that the nonpartisan Congressional Budget Office projects that a national $15 minimum wage would destroy up to 3.7 million jobs. Of course, these hikes aren’t nationwide, and many aren’t quite up to $15 yet. Nonetheless, struggling small businesses already have so little wiggle room in their budgets and are on the brink of collapse. Thus the negative effect minimum wage hikes have on local economies will be severe.

    Of course, there’s little doubt that the legislators who enacted these pre-planned minimum wage hikes hoped to help workers, not put them out of work amid an economic crisis. But the laws of basic economics are unmoved by compassionate hand-wringing—and good intentions never guarantee good results.


    Brad Polumbo

    Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Opinion Editor at the Foundation for Economic Education.

    This article was originally published on FEE.org. Read the original article.


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  • How a Minimum Wage Hurts Those It’s Designed to Protect

    Posted on by Azrael Comment

    In the final presidential debate, former Vice President Joe Biden gave full support to raising the minimum wage to $15 an hour, even in the midst of the economic downturn caused by the COVID-19 pandemic and the government-induced lockdowns that followed.

    President Donald Trump’s complaint was that raising the minimum wage would hurt small businesses as it would raise the cost of labor.

    But raising the minimum wage would not just hurt many small businesses who need certain types of labor and don’t have the revenue to pay $15 an hour for it. It would also hurt employees whose labor is simply not worth the increase in price.

    I don’t think any of us, regardless of what we think about the minimum wage, genuinely want anyone to be compensated unfairly for their work. Nor do we want to see people not make enough to suit their needs.

    Minimum wage laws, however, do not help low-income workers make a living. They actually end up pricing them out of the market in many instances.

    Imagine you own a small business – a bar, let’s say – and your bar has recently become the hotspot of your small town. You’ve seen a significant increase in profit over the past year, and you’ve decided to use that extra profit to hire someone to do the job you hate doing the most: cleaning the bathrooms.

    You hire Ned. Ned is a low-skilled worker with no high school diploma. However, he is a hard worker and is voluntarily offering his labor for $5 an hour, 10 hours a week. If you pay him $5 an hour, you’d be making the same profits as you were before, except your job would be a lot easier with the extra hand.

    Now imagine that the government comes to your bar and demands that you must now pay all your employees no less than $7 an hour.

    If you pay Ned $7 an hour, you will be losing an extra $20 dollars a week. That’s around $80 per month and $1,040 per year. If your revenue stays the same – and that’s only if people keep coming to your bar at the rate they currently are – you’ll be making over $1,000 less in profit than you did last year.

    Keep in mind, you’re fully capable of cleaning the bathroom yourself. Anyone can clean a bathroom. You just don’t want to do it if you can afford to pay someone else to. Are you going to take the loss or are you just going to clean the bathroom yourself?

    Of course, you could up the price of your drinks, but maybe that’s one of the reasons your customers keep coming back – because they feel your drinks are affordable. Raising prices could actually deter customers.

    Most people, I’d imagine, would just choose to clean the bathroom themselves. Ned, likely, would lose his job.

    Was the government helping Ned? Were they helping you? What about your consumer? No! Not at all!

    The government only caused Ned to get laid off. You, now, are going to have to spend your mornings scrubbing that nasty commode! And are your customers going to be able to get a better deal on their beer? No!

    Let’s assume the government actually wanted to help Ned. Where did they go wrong?

    The government was ignorant of basic economics.

    They never took into account that the demand for Ned’s labor simply didn’t equate to $7 an hour.

    It’s important to understand that employers are consumers of labor and employees are producers of labor. An employee is one who has sold his work (whether that be cleaning your bar’s dirty toilets or designing rockets for SpaceX) to an employer for an agreed upon price.

    In any market, the producer is tasked with setting a price that balances the supply and demand of their good or service.

    When a price is set below that equilibrium, a shortage is created. Consumers will buy it up too quickly and drain the supply before it can be replenished.

    The opposite effect, a surplus, results from setting the price higher than the equilibrium. Most consumers will find the good or service not worth the price. The producer, then, will be unable to sell all of their goods or hours of their services.

    That’s exactly what happened to Ned. You – the consumer of Ned’s labor – decided his labor was not worth the extra $1,040 at year. Ned’s labor is at a surplus.

    And a surplus in the labor market does not mean abundance. It does not mean a bunch of goodies stored away in some warehouse waiting to be used. It means unemployment.

    If it were up to Ned, do you think he would rather offer his labor at $5 an hour and keep his job or offer it at $7 and lose it?

    Though the government told you that you could not pay Ned less than $7 an hour, they, in turn, also told Ned that he could not offer his labor at less than $7 an hour. This takes away Ned’s freedom to choose. It takes away his ability to use his labor the way he wants to. Now, unless Ned is able to make his labor worth $7 or more an hour, he will inevitably receive $0.

    This obviously won’t happen in every situation. Some small businesses may be willing to reduce profit so they don’t have to let anyone go and many larger businesses can probably afford the increase, but it nevertheless provides incentives for both to let low skilled workers go and either do the jobs themselves or replace them with less expensive alternatives such as machines and computers.

    Many who support raising the minimum wage to $15 an hour do so because they truly want something better for other people. But before we make decisions about policy, we must always ask whether or not it is effective at achieving its end goal.

    Minimum wage laws price low-skilled workers out of the market, while inviting the government to get more involved in how we sell our own labor. And, to me, neither is desirable.


    Will Blakely

    Will Blakely is a student at Auburn University studying public relations and political science who hopes to pursue a career in public policy.

    This article was originally published on FEE.org. Read the original article.


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