The Minimum Wage Should Be Abolished

Also, the focus is on the American Federal Minimum Wage. In discussing labor and the price at which a worker may sell his labor, one must understand prices. The price at which something sells is not randomly determined but is the result of cause and effect. In other words, there are reasons why a selling price is what it is. A seller may no more ask whatever price he wants and expect to sell than a buyer may offer whatever price he wants and expect to buy. The interplay of supply and demand will determine the "market-clearing price". (1) For a more in depth study, see Kirzner's Market Theory and the Price System. In considering supply and demand, we can see a very simple problem with a minimum wage, namely that raising the price of labor will lead to less quantity demanded. One would expect, complexities aside, that raising the minimum wage would lead to a reduction of employment among any whose labor is not worth the government-imposed wage floor, i. e. , low wage workers. This is exactly what we do see. (2)(3) If the quantity demanded for low wage workers goes down, i. e. , low wage workers are laid off or hired at a slower rate, their consumption necessarily drops. Furthermore, low wage jobs are often the first rung in a ladder to higher paying jobs, and if workers are kept off this first rung, or delayed in getting on it, their future earnings are expected to be negatively affected. We do in fact see this. (3) The Fair Labor Standards Act (sic) of 1938 (4) provides for a minimum wage for nonexempt workers. However, if low wage workers find it harder to get nonexempt jobs, as has been demonstrated, then there will be more workers seeking exempt jobs. (5) According to The Law of Supply and Demand, the wages of these workers will drop with the extra supply, thus hurting their consumption. It is also instructive to note what the FLSA does NOT do. It does not A) prevent an employer from laying off workers, nor does it B) force him to hire new ones. It does not C) regulate what other benefits may be offered, it does not D) compel him to keep all his workers at full time status, and it does not E) dictate to whom job assignments may be given. The employer, in other words, is left free to "strategize around" the minimum wage law. Because of A) and E), he is free to cut his labor force of low wage workers and make the fewer remaining workers do the same amount of labor. In this case, the remaining workers will experience an increase in wages but their jobs will become more strenuous. Since they were free to seek more strenuous work and its greater compensation without a minimum wage, it is not at all clear that they are better off with more consumption in the hours they don't work when the hours they do work will be less pleasant. Also, the workers who were laid off now earn nothing and, because of B), are not in a good position to find new employment. Because of C), certain other amenities that contribute to quality of life may be cut to offset the increase in labor costs for any low wage workers who continue to be employed after a passage or increase of a minimum wage. For instance, air conditioning can be reduced, as can heating in cold weather. The point of consumption is to increase quality of life, so if a worker must work in less comfortable temperature while on the job, it is not clear that he is better off simply because he has greater purchasing power. Indeed, the workers were free to bargain with the employer beforehand, asking for a higher wage in exchange for more onerous working conditions which would cost the employer less. Because of diminishing returns, each additional hour of labor input from a worker is worth less, ceteris paribus, than the one before it. Therefore, each hour worked, ceteris paribus, will mean the mean labor value of the worker goes down. Because of D), an employer may choose to reduce labor hours per week to thus increase the average labor value per hour to make it commensurate with the higher mandated wage. However, since the worker has fewer hours, despite the higher hourly wage he does not necessarily gain in purchasing power. Indeed, if he could earn more by working less, his labor being worth more thereby, one would expect the employer to hire more workers for fewer hours per capita and the workers to demand just that, since they were all free to organize their affairs this way. Finally, we know that not all workers are equally productive, given the same assignments and paid the same wage. Because of E) and A), an employer is free to lay off low wage earners and give their tasks to workers whom he was already paying above minimum wage in the first place. The employer may have to raise the high earners' salaries a bit in compensation, but the low earners are now "no earners" and their consumption must drop. Minimum wages have indeed been linked to more higher skilled adults taking minimum wage positions even as lower skilled youth workers see their employment opportunities shrink. (6) This last part raises the issue of restricting the worker. Since low wage earners can be in competition with higher skilled workers, the ability to offer a lower wage is a way for a low skilled laborer to compete with a high skilled laborer. For instance, an employer may simply tell his chemical engineers that they are responsible for cleaning their own work spaces. However, a low skilled laborer may offer to do that work for a low wage and thus gain employment, a situation which might make all three parties – boss, engineers and janitors – happiest. A minimum wage can thus be seen to be a restriction on a low wage earner's ability to compete with high skilled labor. Conclusion A minimum wage is an unjustifiable intrusion by a government into a private labor contract between employer and employee. While there are many reasons to oppose it, including moral ones, one main reason is because it does not even achieve what it sets out to achieve. Many workers, because of the minimum wage, can expect to lose their jobs – and thus lose all purchasing power not lent to them or saved in advance – see a loss in hours worked – and thus see reduced consumption – or, even if they do see their wages increase, their jobs may become more unpleasant, something which may more than offset their gain in hourly wage. Once again, I thank my opponent for accepting the debate and I look forward to his response. (1). . http://www.thefreemanonline.org... # (2). . http://austrianeconomists.typepad.com... (3). . http://showmeinstitute.org... (4). . http://finduslaw.com... (5). . http://www.toolkit.com... (6). . http://www.seattlepi.com...