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Tuesday, February 11, 2014

The Real Minimum Wage is Zero -

 E Hobson - Contributing Editor

It is a common fallacy that raising the minimum wage makes people better off. It doe not.  If that were the case, then why not raise it tenfold?  The truth is the minimum wage has consequences. There are winners and losers. 

The minimum wage is inflationary, and the additional cost in wages has to be born by someone--the consumer or future job applicants. The resulting increase in price of the product decreases the ability of the most price sensitive--the poor--to meet their needs. If the employer reduces profits, it decreases the company's ability to create jobs.

The minimum wage decreases employment. Raising the cost of labor makes thousands of business plans non-viable. Jobs that were not created are apart of the unseen cost of such policies. It incentivizes other employers to automate and outsource. It causes other employers to lose business or just close. It deprives the least skilled the opportunity to be productive and serve others. 

Because it makes it harder for youth to find work, the minimum wage is also responsible for increased crime. 95% of minimum wage workers are the young. Raising the minimum wage hurts minority youth disproportionately. It makes that first rung on the economic ladder harder to reach. Entry level jobs are an opportunity to prove to a employer that you are worth more than the minimum wage. Subsequently, if a worker is worth more than the minimum wage, why are they unable to find a employer who agrees?

Furthermore, raising the minimum wage indirectly makes borrowing more expensive. The result of increased inflation is higher interest rates. New loans will require a risk premium due to the fact that they will be paid back with cheeper dollars.

Existing savings are cheapened by the same inflationary effect. Often as a result, thrifty savers move to riskier investments such as stocks. The resulting volatility of savings threatens future fiscal stability.

The winners are people with large existing debts, as well as those low wage earners who manage to keep their jobs. Why government policy chooses to encourage and emulate this behavior at the expense of the responsible is reprehensible. Can you say "moral hazard"?

It is those who end up losing their jobs or perpetually unemployed due to jobs destroyed by such laws that get the real minimum wage: ZERO.

The minimum wage laws, as with all market interventions, make us poorer.

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