On balance, a minimum wage is detrimental

I will lay out the majority of my argument in this round. Basic function of the minimum wage and its general impact on the economy The minimum wage is a price floor which, in some case, forces a superficially high wage rate. This occurs through the value of the labour being worth less than the minimum wage, causing a superficial inflation. Essentially, a business runs at a loss if it were to hire an employee whose actual labour value was worth less than the minimum wage. As you can see, at least in theory, the minimum wage is detrimental to business, yet it’s also detrimental to employees. Remember, if you can’t get a job, your income is zero… Minimum wage has, statistically, been shown not to reduce unemployment. A comprehensive study by Burkhauser et al. -, concluded that, “Minimum wage increases have an insignificant effect on the employment of prime age workers (aged 25 to 61), but they have large and significant negative employment effects on teenagers, young high school dropouts, and young blacks. Hence, the very people minimum wage policies claim to help are most likely to be adversely affected. ” [6] Another study concluded that, “a 10% increase in the minimum wage reduces teenage employment by 1% to 2%, and a decline of 1.5% to 2% among young adults. ” [7] Note that an American governmental body produced this. Yet another study: “Finds that the negative effects of a minimum wage increase are greatest for nonwhite teenagers. Moreover, the disemployment effects on the size of the labor force are greater than the effects on the unemployment rate. ” [9] This particular, collaboration of studies by a not-for-profit organisation, concluded that, “After analyzing poverty rates and increases in state & federal minimum wage laws from 2003 to 2007, they determined that raises in the minimum wage requirement have no effect on poverty. ” [10] As you can see, several studies suggest that there are multiple problems with a minimum wage in America, ranging from hurting black-American teens, teens and women, to reducing employment and not fixing the poverty issue. Supply and demand violation James Dorn, of the CATO institute, says that, "… the law of demand states that when the price of anything (including labor) increases, the quantity demanded will decrease, assuming other things affecting demand remain unchanged. In the case of labor, this means as the price of labor (the wage rate) increases, the number of jobs will decrease, other things constant. Moreover, the decrease in employment will be greater in the long run than in the short run, as employers shift to labor-saving methods of production. " [11] What Dorn is saying can be represented through this graph [12]: As shown by the graph, as the supply of available employees increases, the demand for them decreases (so long as all else is equal). The supply of available employees increases as some businesses hire less people, due to minimum wage, if the work costs less than minimum wage. This means that if the labour costs $4.50 per hour in real terms, a business will be hiring labour for twice the amount for if minimum wage is $9 per hour, in theory. Workers who want to work, but due to lower demand and greater supply, no longer can [12], (businesses will be hiring less people, as businesses will either raise prices or cut employees to cope). Impact on teenagers Businesses, when forced to pay minimum wage, and with all things equal, will be unable to hire as many workers; why would a business want to hire at a loss? This has been shown to negatively affect teenagers, such as the case in Louisiana [1]. A ~43% increase in the federal minimum wage had teenaged unemployment soar from 13.6% (2006), to 26.5% (2011). What this shows is that a minimum wage leaves businesses hiring less teenagers because that rise from $5.15 to $7.25 means that, all else being equal, there are 30% less jobs for teenagers (which equated to 6,600 jobs for them, in this scenario). As you can see, minimum wage has left teenagers, in general, with fewer opportunities to enter the workplace. Another study showed that, “a 10% increase in the minimum wage will reduce teenage employment by 1%-3%” [8]. Automation As the artificial costs of hiring people become greater, businesses, in hope of greater profits, will turn to the automated industry. After the initial cost of the machinery, and general maintenance, it could potentially be cheaper for a business to run a machine, than to hire a person (not to mention the social expenditure, like motivation and well-being, a human requires). Progressive Car Insurance is able to offer cheaper fees than it could in the past. Why? “Less overheads, [meaning less hiring costs] means more savings. There’s no phone queues, no unnecessary chatter and endless questions, and that means we have much lower overheads to pass on to our customers. [2]” This company is able to offer savings due to its 100% online, automated service. Less power for the employee A minimum wage reduces the bargaining power of the people at the bottom. This creates an additional barrier to employment for the employee, a barrier that need not exist. If someone wants to work for a wage below the minimum wage, and is understanding of the work involved, would it not be good to let them work for that amount? Should people not have the right to self-determination, so long as their actions do not harm others? Tort law, used to counteract free, risky contracts, serves no good in regards to minimum wage, as there is no immediate danger involved in the contract [4]. In other words, tort law exists to prevent companies from selling dangerous products, not employees consenting to contract. Worker exploitation is an argument often made in favour of the minimum wage. In America, “Minimum wage workers account for 4.7 percent of hourly paid workers in 2012” [5]. This would indicates that workers, in theory, would mostly be paid an accepted, real value for their labour, rather than a contrived value. Furthermore, the 4.7 percent could be slightly lower, as some of the work may, in reality, be worth $7.15 an hour. So, worker exploitation/slave wages, all things being equal, would not be rampant without minimum wage. Sources and References [1] . http://www.thepelicanpost.org... [2] . http://www.progressiveonline.com.au... Reference no. 3 in next round [4] . http://www.cato.org... [5] . http://www.bls.gov... [6] “Who Minimum Wage Increases Bite: An Analysis Using Monthly Data from the SIPP and CPS”, Richard V. Burkhauser, Kenneth A. Couch, and David C. Wittenburg; January 1997 [7] Neumark, David, and Wascher, William. 1992. Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws. Industrial and Labor Relations Review, vol. 46 (October): 55-81. [8] Minimum Wage Study Commission. 1981. Report, 7 vols. Washington: U. S. Government Printing Office. [9] Mincer, Jacob. 1976. Unemployment Effects of Minimum Wages. Journal of Political Economy, vol. 84 (August): S87-S104. [10] . http://www.epionline.org... [11] . http://www.cato.org... [12] . http://www.conservativepolitico.org...