From: jmorriso@ee.ubc.ca (John Paul Morrison)
Subject: On minimum wages
Organization: University of BC, Electrical Engineering
Date: Wed, 27 Jan 1993 03:47:16 GMT



I'm awaiting a well thought out, Socialist response to this:
(I hope to be pleasantly surprised)


581 words                  The Freeman
page 1 of 3                Foundation for Economic Education
                           Irvington-on-Hudson, New York 10533
                           (914) 591-7230

      The Minimum Wage: An Unfair Advantage for Employers

                    by Donald J. Boudreaux

     While Congress and the Bush Administration are squabbling
over how much to raise the minimum wage, they should keep in
mind that all minimum-wage legislation creates a buyers'
market for unskilled labor.  And as in all buyers' markets,
buyers (in this case, employers) enjoy an unequal bargaining
advantage over sellers (in this case, unskilled workers).

     Consider, for example, a grocer.  Suppose he decides that
a clean parking lot will attract more customers, and that this
will increase his sales by $10 per day.  Of course, the grocer
will pay no more than $10 a day to have his parking lot
cleaned.  He then investigates how best to get the job done.

     Suppose there are two options available to him.  One way
is to hire a fairly skilled worker who can clean the parking
lot in one hour, while the second way is to hire two unskilled
workers who, working together, will get the job done in the
same time.  Other things being equal, the grocer will make his
decision based upon the relative cost of skilled versus
unskilled labor.

     Let's assume the skilled worker will charge $6 an hour,
while each of the unskilled workers will charge $2.50 an hour.
In a free labor market, the grocer will hire the two unskilled
workers because, in total, it costs him $5 per hour for the
unskilled workers whereas it would cost $6 for the one skilled
worker.

     But what will the grocer do if a minimum wage of $4 per
hour is imposed?  To hire the two unskilled workers will now
cost him a total of $8 an hour.  The skilled worker now
becomes the better bargain at $6 an hour.  Minimum-wage
legislation strips unskilled workers of their one bargaining
chip: the willingness to work at a lower wage than that
charged by workers with more skills.  The result is
unemployment of the unskilled workers.

     Consider another effect of the minimum wage.  Because
there are more people who want jobs at the minimum wage rate
than there are jobs to go around, employers have little
incentive to treat unskilled workers with respect or dignity.
If an employer is abusive toward an unskilled worker, the
employer need not be concerned if the worker quits.  After
all, there are plenty of unemployed unskilled workers who can
be hired to fill positions vacated by workers who quit.

     In addition, the permanent buyers' market created by the
minimum wage encourages employers to discriminate in their
hiring and firing decisions on the basis of sex, race,
religion, and so on.  Suppose an employer has two minimum-wage
jobs available, but there are ten unskilled workers who apply
for the jobs.  Because the workers are prohibited from
competing with each other on the basis of wage rates, other
factors must determine which of the workers will be hired.  If
the employer, say, has an irrational hatred of blacks, and if
there are at least two non-black workers who have applied for
employment, you can be sure that no black workers will be
hired.  With a surplus of unskilled workers, there is no
economic incentive to stop this bigoted employer from
indulging his prejudices.

     Minimum-wage legislation creates an excess supply of
unskilled labor.  This gives the buyers of unskilled labor an
unfair bargaining advantage over the sellers of unskilled
labor.  It is thus pure fantasy to believe that the welfare of
unskilled workers can be improved by such legislation.
Unskilled workers shouldn't be restricted to a permanent
buyers' market.

____________________________________________________________
Professor Boudreaux teaches economics at George Mason
University in Fairfax, Virginia.  A longer version of this
article will appear in The Freeman, published by The
Foundation for Economic Education, Irvington-on-Hudson, New
York.
-- 
__________________________________________________________________________
 John Paul Morrison                     |  
 University of British Columbia, Canada |  
 Electrical Engineering                 |   .sig file without a cause
 jmorriso@ee.ubc.ca              VE7JPM |  
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Newsgroups: can.politics,soc.culture.canada