Not Just (In) Deserts

by Don Boudreaux on February 12, 2007

As my friend Roger Meiners said when he passed along to me this news report about the consequences of Arizona’s recent hike in its minimum-wage, "demand curves still slope downward" — which means, of course, that people respond to higher costs by trying to minimize their exposure to these costs.

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Mesa EconoGuy

More importantly, what this law will do (and has done) is increase the demand for low-wage (illegal) labor here in AZ.

Dr. Friedman recognized you cannot have open borders with a welfare state such as ours.

I would add also a federal government that refuses to enforce its laws.

TGGP

Brad, it WILL be a subsidy to low-wage employers. It's pretty basic economics that when you subsidize something you get more of it and when you penalize it you get less. Voters want the unemployed to get jobs, which is why politicians go on and on about how their plan will "create jobs". And what do you mean by "full value of labor" not covered by what they are paid. Who determines the value something is worth other than the people willing to exchange something of value in order to get it or give it?

Mike Hammock

Brad, wages are determined by supply and demand in most labor markets. The incentive to pay the market wage is that a company paying below market wage will lose workers (or it will tend to attract low quality workers). I'm not sure I understand the rest of your questions.

Brad

Splain something to me. Let's say we take Milton Friedman's general advice, do away with the minimum wage, and replace it with a negative income tax (e.g. expand EITC). Two questions... What incentive do employers have to pay the full value of labor that is below the "effective minimum wage" established by the negative income tax? How would such a program be administered so that cash flow for low wage workers isn't a problem? (Or is cash flow from wages the bulk of the incentive for workers to demand a higher wage?)

Politically, how would such a situation not look like a subsidy to low wage employers?

David Z

Sk -

it also misses the point that a high school education does relatively nothing to improve one's employability, especially at "entry level" positions. These people will eventually end up looking for a job, but without any relevant experience to put on their application.

It was hell for me trying to find a decent job out of college - because I hadn't done an internship. If you can't get your foot in the door, it's damn near impossible to start climbing the ladder.

SK Peterson

Reading the article I thought of another argument that could be used by minimum wage advocates responding to the obvious results of their policies noted. "The minimum wage forces high schoolers out of the market, thereby ensuring they remain focused on their educations. As a result, they graduate as more employable citizens earning higher wages, while older adults with families to support will earn higher wages as a result of the minimum wage increase." The problem being that these advocates will then expect this to be the case with the next round of minimum wage increases - that only high schoolers will be affected, without realizing that after enough increases there aren't any more high schoolers to lay off and the people losing jobs at that point are the marginalized workers the minimum wage was supposed to help.