Minimum Wages Laws Having Economic Effect Should Be Abolished

Definitions "A minimum wage is the lowest hourly, daily, or monthly wage that employers may legally pay to employees or workers. Equivalently, it is the lowest wage at which workers may sell their labor." http://en.wikipedia.org... The "having an economic effect" caveat in the resolution excludes minimum wage laws that set rates substantially below the market rates for labor in the industry affected. Minimum wages laws that are symbolic, making someone feel good for some reason, are harmless. In my area the market rate for unskilled day labor (from illegal aliens effectively exempt from wage laws) is $15 per hour. Setting an enforced minimum wage of $7 per hour for that particular type of work would have no significant economic effect. Arguments The purpose of minimum wage laws is to attempt to force employers to subsidize low wage workers. This attempt fails because there are alternatives to paying the low-wage worker. One is to simply eliminate that business. The other is to automate the job, replacing the unprofitable low-wage labor with machinery and skilled labor that turns a profit. 1. Here is an example that is a paradigm for the arguments against a minimum wage. Fast food restaurants employ low-skilled workers. Suppose a higher minimum wage is imposed. The restaurant then raises its prices to cover the costs. The laws of supply and demand dictate that there will be some customers who will pay the higher price, but that some others will not. The chain outlet in an upscale area may continue with only a small drop in business, however in a less affluent area business will drop more sharply. The people not buying hamburgers will bring their lunch or buy pre-packaged food from a convenience store. The outlets that are no longer profitable will be closed, or the hours reduced to prime selling periods. The net effect is that some of the employees will make more wages, but others will lose their jobs and the previous patrons of those outlets will not get hamburgers they can afford. 2. The outlets that survive selling higher priced hamburgers might now find automation attractive. About a decade ago, McDonald's built a prototype fully automated restaurant. None of the tasks involved are beyond automation. All that is necessary it to have labor costs rise above the capital and maintenance costs of the equipment. As labor costs rise, McDonald's is moving to greater and greater automation. http://www.techdirt.com... The Japanese fast food chain Yoshinoya now operates with advanced automation. they sell curries and stews over rice, not hamburgers, so they are easier to automate. In expensive Tokyo, they deliver meals to customers for under $4. http://www.epinions.com... What Yoshinoya needs most to succeed in the US are high minimum wage laws. Get fast food burgers to $10 and there will be a dramatic increase in rice bowls. 3. The alternatives of shut down or automation apply universally as alternatives to the minimum wage. Low-skilled janitors are replaced by higher-skilled technicians riding automated cleaning machines. Farm labor is being automated, with crops such as wheat and corn being most highly automated. Around 1900, it took the labor of over 90% of the population to produce the food; now, due to automation 4% of the workforce produces the food. There are some crops that are difficult to automate, but raising wages will accelerate the pace of automation. Overall, when the minimum wage increases by 10%, unemployment rises by +2% to +6% (Richard Burkhauser, Kenneth Couch et David Wittenberg, "Who Minimum Wage Increases Bite: An Analysis Using Monthly Data from the SIPP and CPS", Southern Economic Journal, 2000). 5. Although increased minimum wages throws some workers out of work, it could still be argued that remain employed benefit. Actually, there are unintended consequences that diminish that advantages. "Individuals between the ages of 16 and 24 accounted for 53 percent of all minimum wage-earners in 2005. When the minimum wage rises, it increases the incomes of teenagers with minimum-wage jobs, making entering the workforce more attractive. This, in turn, can be expected to cause some students to spend less time in school and more time working. While the overall number of minimum-wage jobs might decrease, if employers prefer to hire teenagers to low-skilled adults, the number of teenagers enrolled in school would drop. ... Recent research has confirmed exactly this effect. David Neumark, professor of economics at Michigan State University, and William Wascher, a researcher with the Federal Reserve, found that minimum wage hikes decrease the proportion of teenagers enrolled in school." http://www.heritage.org... 6. Suppose we temporarily ignore the fact that minimum wage laws increase unemployment and poverty. There is an abstract argument that everyone "deserves a living wage." If this is accepted as true, the way to achieve the objective is to provide welfare benefits directly from the government to the person deemed to have substandard wages. There are many mechanisms for doing that, the earned income tax credit being one. Direct welfare shifts the burden from employers to the public at large. If the public wants to pay more welfare, they should bear the burden, not attempt to put what is effectively a special tax on employers. Doing so would then preserve jobs according to what the market can sustain, rather than forcing the jobs to be eliminated. 7. Many low-wage jobs are not primary sources of income. For example, teenagers get part-time jobs for reasons other than sustaining their existence. It's good training in responsibility for future work life, they may get money for sneakers and video games, or they may make some contribution to the overall support of their families. Older workers may get most of their living from pensions or Social Security, but want additional income as supplement, not as a sole source. If the public decides that a person's total income is inadequate, the public should increase welfare benefits, not attempt to force employers to take on the public responsibility. 8. The facts relative to minimum wage laws are clear and decisive. So why are the laws advanced? It is political strategy to buy votes. When minimum wages are increased, the people who receive increases are generally grateful to the politicians who favored the increase. The people who lose their jobs as a consequence don't blame the politicians, they blame the employers who laid them off. So the advocates cannot lose. It also supports the political ideology of redistributing wealth. Employers are viewed by leftist ideologues as "rich," so efforts to redistribute wealth to "poor" employees is thought to be a righteous moral action, even though it doesn't work. the thinking is that only the intention counts, not the results. 9. If it were true that minimum wage laws helped cure poverty, then poor countries could just set a minimum wage of, say, $25 per hour. Or why not $100 per hour, so everyone could be well-off? No one believes for a moment that such a tactic would work. Advocates of minimum wage laws ought to explain why it wouldn't work. It is for precisely the reasons I have given. Minimum wage laws should be repealed for the benefit of employees, employers, and customers alike.