Sunday, May 2, 2010

Minimum wage, maximum unemployment

This was previously posted on on or before 2006-11-11:

With the elections now over, we now hear that one of the first laws that the new congress will pass is an increase in the minimum wage from $5.25 per hour to $7.25.

Why only $7.25? Why not $10 even? Why not $20 or $100? Heck, let's just make it $1,000 so that everyone is on par with the country's best attorneys. Or $1 million a day, like the best hedge fund managers.

Of course, for anyone with the slightest common sense, and for others with a passing grade in Economics 101, we know that a minimum price on anything causes more supply than demand - in this case labor.

At the current minimum wage of $5.25 there are relatively few people who are priced out of the market. At $1,000 an hour, we would have 99% or more unemployment.

The point is that you don't make anybody worth $7.25 (or any other number) by making it illegal to pay him or her less. All you do is make him or her unemployed, unless of course someone is willing to break the law. Now that's nice - creating criminals out of people who want to hire fellow citizens. Perhaps this goes hand in hand with those who think it is perfectly fine for people to walk across the Mexican border without permission. All of those illegal immigrants who work in the US automatically create a criminal out of every employee. In either case, however, people would rather be a criminal than unemployed. The difference is that in the case of the illegal immigrant, the employer doesn't risk much that the employee will turn in the employer to the police, because the employee faces deportation. In the case of paying a US citizen below the minimum wage, however, the employer would have to think more than twice because the worker only loses his or her job if the police is told.

The minimum wage falls into the same category of counterproductive social experiments as alcohol prohibition 1920-33 and the current war on drugs, which started softly 1914 and was intensified under Richard Nixon and again under Ronald Reagan.

Alcohol prohibition 1920-33 didn't do anything to reduce alcoholism, but it made almost every American adult into a criminal, and it created mafias, violence and police corruption. The war on drugs, well - same thing.

So here we go again - the government setting a price where it has no business being involved at all. Raising the minimum wage will not add a penny to a person's pocket who is making $5.25 today. It will only make this person unemployed. 180 degrees counterproductive.

The only sane thing to do is of course the abolition of the minimum wage, period. This would create employment opportunities for those not worth $5.25 an hour.

The minimum wage is the mirror image of the maximum price, another government favorite insanity. It has been applied at times in the past for things such as gasoline (1973, 1979) and rental apartments. All you got was of course a shortage of gasoline and apartments. Pretty obvious to anyone with the slightest common sense or listening to the first hour of Economics 101. Now there is talk about setting maximum prices on prescription drugs and (again!) gasoline. Will they ever learn?