An Introduction to Minimum Wage

12/15/2007.

If you don't want to work for less than $6/hour, nobody can force you to. So how does a minimum wage help you? All it says is that even if you want to work for less than $6/hour, you can't. How can a law that prevents you from doing something, which you would only do if you wanted to anyway, help you?

The answer, of course, is that it helps you only in the sense that it reduces the competition from those more desperate than you. The irony is that the more desperate you are, the more it harms you.

Consider a reductio ad absurdum. Someone fairly poor can easily out-compete me for the job of garbageman. After all, they're willing to work for much less than I am. Suppose I get a law passed requiring all garbagemen to get at least my salary. Now I can compete with that poorer person.

These are just like equal pay for equal work laws - they harm those who need jobs desperately by removing their primary competitive advantage, the ability to work for lower wages than those less desperate. Do not pretend minimum wage laws are progressive. The more desperate you are, the more you are harmed because the competitive advantage you are stripped of is larger.

Without the minimum wage.

Without the minimum wage, a person willing to work for $5/hour would have a tremendous competitive advantage. With the minimum wage, he does not. Such a person must be incredibly desperate and in serious trouble - yet he pays the highest price for a minimum wage law, unable to even earn $5/hour.

In every situation where the minmum wage results in a person getting a higher wage, he could have refused to work for any less than that amount anyway. Obviously, the employer wouldn't refuse the wage because the job isn't worth the wage, or he wouldn't hire anyone at all. The only reason an employer would pay less than the minimum wage, where the minimum wage makes him pay more, is because there was someone willing to work for less than the minimum wage who is now prohibited from doing so.

Minimum wage causes unemployment.

The higher and higher the minimum wage - the more and more unemployed people increase.

If your labor is not worth the minimum wage, you will not get a job. So the higher you set it, the more people become unemployable.

Why minimum wage laws were established.

Minimum wage laws were established to prevent poorer workers from competing with workers who were better off.

The fundamental point - all a minimum wage law does it say that even though Joe is willing to work for $3/hour and even though Jack is willing to pay him $3/hour, the 2 of them cannot do so because it is unfair to someone else.

Arguments of counter-arguments.

1.If I go into the job market, I would look for the job that would be willing to pay me the most, not the job that would be willing to pay me the least.

Consider the case where you want a job at company X. You know that someone else also wants this job, but they have more references than you do. You consider it "unproductive" for you to ask for less than the other person, in order to get the job?

2.Minimum wage guarantees that my salary can't decrease! If you argue pro-choice for the employer, well... the whole idea for the company is *usually* to save time and money. Correct? How is it in the 'interest' of the company if more time and money are spent on the unskilled labor? I think minimum wage prompts the employer to make the 'smarter' decision based on the information available to him. Therefore, minimum wage is beneficial for business.

I can't argue with you. If one were to accept your premise, that businesses are too dumb to make intelligent decisions about who to hire and how much to pay them, your conclusion would be right. They would need the government to keep them from hiring unqualified workers.

How minimum wage does this is something of a mystery. It would prevent them from hiring a less-qualified worker willing to work for less for the lower amount, but wouldn't stop them from getting the less-qualified worker and paying more for them as well!

You can't argue with a person whose notion of what the world is like and how it works is so totally disconnected with reality. All you can do is hope they look around and wise up.

However, it is worth clearing up the misunderstanding about why minimum wage doesn't guarantee anyone a wage they can live on. Simply put, it doesn't guarantee they'll have a job at all.

It isn't just about being able to be fired at any time, it's also about terms. If the employer can fire you, because the greater includes the lesser, he can also dictate changed terms. If you can quit at any time, because the greater includes the lesser, you can also dictate changed terms.

Just as you can say "I quit," you can also say, "I quit if you don't increase my salary." Just as an employer can say "you're fired," he can also say, "you're fired if you won't work for less pay" (or more hours or different hours or whatever).

Any reduction in the ability of both sides to continue to negotiate favorable terms just increases the chance that the employment arrangement will end. For example, suppose I'm working for minimum wage, and the value of my work drops for some reason, say the market for the product I make changes. Because my employer cannot offer me a lower salary, his only recourse is to terminate my employment.

If I had a guaranteed run of employment, then minimum wage could help me. My employer might be "locked in" to my employ even when it's not in his interest. Of course, this wouldn't really happen because the risk that the employer would get locked in would be factored into our original deal and he probably just wouldn't hire me if the risk of lock in is too high.

If employees really did want to work for a stable wage, they would negotiate employment contracts. Minimum wage has nothing to do with this because even employees whose salaries are above mininum wage don't this. The point is, they would have to give something up in exchange for the benefit, and they're generally not willing to do that.