Prosperity by Diktat?

by Don Boudreaux on June 30, 2011

in Myths and Fallacies, Prices, Reality Is Not Optional, Seen and Unseen, Work

This cartoon truly is worth more than 1,000 words.  (HT Mark Perry)

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{ 72 comments }

Steve Fritzinger June 30, 2011 at 10:30 pm

Of course, the real minimum wage is $0/hr and always will be.

Why do so many people miss this?

Troll Finder July 1, 2011 at 12:18 am

+1

vikingvista July 1, 2011 at 12:57 am

I once heard Lester Thurow, of all people, say that exact phrase.

Name Redacted July 4, 2011 at 2:37 am

Actually its not. People will pay to do work, if they enjoy the work enough. (they pay in time, effort, hardware costs, etc)
*points at open source software*

DG Lesvic June 30, 2011 at 10:50 pm

“worth more than a thousand words,” but not as much as a graph or a mathematical formula.

The Other Eric July 1, 2011 at 10:13 am

Come on DG, put away your pocket protector and relax a bit. (I rather liked the ladder’s missing rungs.)

DG Lesvic July 1, 2011 at 11:31 am

My comment was not directed against the cartoon, which I liked, but the graphs and charts which so many here love and I hate.

KD June 30, 2011 at 11:00 pm

As Walter Williams would sarcastically say, all you have to do is make the minimum wage in Bangladesh $15/hour and everyone will get rich. of course, Walter is exceptionally good at breaking down the origins and outcomes of minimum wage legislation, but that cartoon is brilliant.

Pete June 30, 2011 at 11:12 pm

This is amazing. It’s the exact imagery I use to (try to) explain to people why the minimum wage isn’t what they think it is. Perfect.

Whiskey Jim June 30, 2011 at 11:33 pm

LOL.

ME = awed by Payne and Ramirez

Greg Webb July 1, 2011 at 12:58 am

A wonderful cartoon that accurately reflects reality and not politically correct stupidity.

Ben Hughes July 1, 2011 at 1:08 am

Some cartoonist could start a blog posting nothing but cartoons illustrating economic ignorance and common fallacies, like this one. The amount of material to draw upon for creation fo such cartoons would be almost endless.

Michael Orlowski July 1, 2011 at 9:45 am

Ben,

I think Reason magazine does cartoons every Friday.

The Other Eric July 1, 2011 at 10:14 am
Chucklehead July 1, 2011 at 1:42 am

“A minimum wage does not raise wages; it outlaws jobs that pay less than that wage. You cannot make people taller by passing a law, but you can make the population taller, on average, by killing off short people. That is how the minimum wage works.” – http://bit.ly/iXbPc6

tdp July 1, 2011 at 3:59 pm

+2

Harold Cockerill July 1, 2011 at 7:20 pm

Huge numbers of people around the world don’t like the fact the world works that way. They don’t like it so much they pretend it’s not true and vote for policies that do exactly what the cartoon portrays.

Michael Bourne July 1, 2011 at 2:58 am

Yep, cos there are no industries whatsoever in which competition is less than perfect, and in which firms have the potential to increase wages without going out of business.

Gregg Webb, if by “reality” you mean “a particular theory”, I’m with you. Especially if by “political correct stupdity” you mean “an instinctive sense of justice”, which many on here have, it seems, managed to dull – no doubt through years of training.

Is there anyone here who either
a) is on the minimum wage?
b) ran a business that went bust as a result of the minimum wage?
c) was on a low wage, but lost there job because of either the implemenation of, or increases to, the minimum wage?

It’d be really interesting to hear from you if there is.

DG Lesvic July 1, 2011 at 6:22 am

Michael,

The minimum wage is like any other instance of price fixing.

So far as the price is fixed above the market rate, there will be an oversupply, and, so far as it fixed below, there will be a shortage.

So, if you fix the minimum wage at a rate above that of the market, there will be an oversupply of labor, and unemployment. But, at the market rate, there will be neither over nor undersupply, for the market always tends toward equilibrium between supply and demand, and the supply of and demand for labor as for anything else.

Sorry that I don’t have any cartoons, graphs or mathematical formulae, but plain and simple economics is all I could muster at the moment.

Stone Glasgow July 1, 2011 at 7:48 am

If you don’t understand why the min wage is wrong, you don’t understand anything about economics.

If I set up a lemonade stand and begin selling beverages for $5.00, would it help anyone to force me to sell them for $8.00? What do you think would happen if it were illegal to sell lemonade below $8.00 per glass?

The situation is exactly the same if you force me to sell my labor for $8.00 per hour and no less.

Methinks1776 July 1, 2011 at 8:34 am

Michael,

If you bought something for $2 and it was worth no more than $2 to you, what would you do if the price increased to $3? You would buy something else.

If your employee produces $2/hr of value for your firm and the government mandated a minimum price of $3/hr, you would would replace your $2/hr employee with one who can produce at least $3/hr of value. The guy who can only generate $2/hr goes on public assistance and his kids sell drugs to your kids for extra cash.

Troll Finder July 1, 2011 at 3:55 pm

+ 1

tdp July 1, 2011 at 4:09 pm

That’s why they should replace minimum wage with the following:

1) Joe has the skill set to earn $4 an hour. He needs to earn $10 an hour to have an acceptable standard of living. Instead of forcing employers to pay $7 an hour, leaving Joe unemployed, the government replaces welfare programs with a system that pays him the equivalent of $6 an hour in monthly installments. Between his two sources of income, he now has the equivalent of a $10 an hour job.
2) Joe’s pay goes up to $6 an hour. His payments from Uncle Sam go to $4 an hour. Now, he still earns $10 an hour, but he has no perverse incentive to remain at a lower income level just to keep receiving assistance.
3)This pattern continues until Joe makes more than $10 an hour. During the time it takes to increase his earning potential, he maintains enough money to support himself, and he gets valuable job experience so that one day he can make more than $10 an hour and no longer rely on government assistance.

vikingvista July 2, 2011 at 12:44 am

1. Joe wouldn’t bother trying to achieve a higher wage position if he is not going to see any of it.

2. The only way to know what Joe’s wage potential is, is to allow him achieve it. No government bureaucrat can determine what price discovery WOULD have revealed.

Methinks1776 July 2, 2011 at 10:22 am

tdp,

I believe you just described Milton Friedman’s negative income tax idea.

vikingvista July 2, 2011 at 2:45 pm

MF’s idea did not have a net wage plateau until getting off public support. Nor did it presume to guess what a particular person’s wage should be.

Frank33328 July 1, 2011 at 9:08 am

You are looking for the wrong evidence. The evidence is not on what DID happen but more of the type of what DIDN’T happen and will now not be able to happen due to the outlawing of jobs that don’t merit more pay than some arbitrarily arrived at price (a.k.a minimum wage). I think the secret is in the unseen, in what didn’t happen, or what was prevented from happening.

Is there anyone here who either
a) is on the minimum wage?
Actually I was as a youth and I was also unemployed as a youth since my talents did not merit what the government had established as a minimum. I am not sure what this question proves…..

b) ran a business that went bust as a result of the minimum wage?
I can show MANY businesses that have gone bust but the degree to which the minimum wage was the primary cause or even just a contributing factor is hard to demonstrate. The better question would be, “How many business have failed to come into existence because the commodity of unskilled labor became too expensive?”

c) was on a low wage, but lost their job because of either the implementation of, or increases to, the minimum wage?
Again, there are MANY people who have lost their jobs but the degree to which the minimum wage was the primary cause or even just a contributing factor is hard to demonstrate. The better question would be, “How many job have failed to come into existence because the commodity of unskilled labor became too expensive?”

A closing question is, do you buy into the idea that “cheap foreign labor is taking jobs overseas?” If so, then you are admitting by default that the outlawing of low paying unskilled jobs in the US (aka as minimum wage) is the cause, and that Americans are by law, forbidden from competing with cheap foreign labor.

raja_r July 1, 2011 at 10:03 am

“Is there anyone here who either
b) ran a business that went bust as a result of the minimum wage?”

One of our vendors, a magazine/bulk mail fulfillment house laid off a bunch of employees when Illinois raised the minimum wage. They automated most of the work by modernizing/automating.

My brother-in-law works there, so I knew what the thought process regarding automating was before the minimum wage hike (they didn’t want to make the investment) and after (it worked out to be cheaper to automate).

Greg Webb July 1, 2011 at 10:24 am

Michael Bourne, who said anything about “there are no industries whatsoever in which competition is less than perfect, and in which firms have the potential to increase wages without going out of business.” Yes, there are industries in which competition is less than perfect because government intervenes extensively in all industries through tax and regulation policies designed to reward the politically correct winners by limiting competition and making it more difficult from entering the industry as a new competitor. And, yes, there are firms that have the potential to increase wages without going out of business. The government uses coercion to force people to pay above-market wages. So, as any prudent person would when faced with higher costs, they cut back elsewhere, usually by delaying any decision to employ someone else, which is why countries with high minimum wage laws have high unemployment among teenage workers. There are simply less low skill jobs around when the price is set arbitrarily high. So is it better to have a few “winners” and a lot of unemployed people who are not able to learn job skills and make contacts for other employment opportunities by government coercion forcing employers to pay above-market wages?

You also said, “Gregg Webb, if by ‘reality’ you mean ‘a particular theory’, I’m with you. Especially if by ‘political correct stupidity’ you mean ‘an instinctive sense of justice’, which many on here have, it seems, managed to dull – no doubt through years of training.” No, Michael, words have meaning and I carefully chose those words to express my dismay that corrupt politicians pass laws that have unintended effects — in this case, the effect of making a lot of low skill teenagers unemployable with above market wages.

I do not engage in doublespeak or doublethink, which appears to make it so difficult for many on the left to understand what libertarians are saying. The dictionary does not define “reality” as “a particular theory” or “politically correct” as “an instinctive sense of justice.” To do so would be politically correct, which means it is always wrong. Otherwise, they would simply say something is correct. The “political” part of the term gives away that its true meaning is that the proposition is wrong.

Would it be “just” to force you to pay for someone else’s dinner tonight just because you have some extra spending money that you want to save to buy your girlfriend a diamond engagement ring? After all, she does not really need a diamond engagement ring. And, besides that’s petty bourgeoisie thinking. You should not be so selfish! What is that poor other people going to eat tonight? And besides, savings is bad and spending is good because it stimulates the economy. So, how do you like it when I use politically correct stupidity when you are the target of my plan to coerce you into doing what I want you to do and not what you want to do. But, you should readily agree with my politically correct stupidity (see immediately above) because you have “an instinctive sense of justice.”

In answer to your questions, I have worked for minimum wage and know that my employer changed his plans to hire some additional workers when government increased the minimum wage. I did not worry about it at the time because I was focused on increasing my skills and knowledge so I could get a better paying job. I am now running a business where we consider total compensation expense relative to our expected revenues before hiring any new employees.

I see that DG Lesvic, Stone Glasgow, Methinks1776, and Frank33328 have already provided an economic analysis of the effects of the minimum wage law so I see no need to re-explain this to you. Thanks, guys! You did a great job of explaining basic economics to Michael.

Michael, as F.A. Hayek so wisely said, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” And, the politicians did not realize that the unintended effect of a minimum wage law was to increase unemployment primarily among teenagers and other low-skill workers. So, instead of criticizing what you do not understand and pompously moralizing about what others should be doing, you would be better off listening to others who know more than you do and directly helping others who are truly in need.

Sam Grove July 1, 2011 at 7:56 pm

In fact, minimum wage laws were created in the U.S. precisely to raise the unemployment levels of black youth.

vikingvista July 2, 2011 at 12:48 am

Who says government programs are never a success?

Name Redacted July 4, 2011 at 2:44 am

Yep.

cmprostreet July 1, 2011 at 10:44 pm

a) is on the minimum wage?
I was in the not-too-distant past. However, in the second year I was there, the owner hired fewer workers and replaced them by occasionally paying his son’s friends under the table, or by skimping on maintenance. The reason? Minimum wage hike.

b) ran a business that went bust as a result of the minimum wage?
My wife worked for a business owner who likewise has held off on hiring extra staff and occasionally has forgone opportunities to open other locations due to increases in the minimum wage.

As a side note (but related), at the first job mentioned above, I would have gladly worker beyond 40 hours per week at the same hourly rate. However, by law, I was forbidden to sell my extra labor at that rate to the same employer who purchased my first 40 hours- I had to charge him an extra 50% after the 40th hour. Naturally, he declined, so many things which would have been worth doing were left undone (hiring another new worker to do those leftover things would have included extra payroll and unemployment insurance costs, so that was not an option either).

Lastly, are you really hunting for anecdotal evidence in support of an economic reality in lieu of just learning and understanding the actual underlying economics which were just clearly explained above?

dsylexic July 1, 2011 at 3:52 am

b) ran a business that went bust as a result of the minimum wage?

it is more likely that there are more people remaining unemployed due to the minimum wage than companies going bust. the minimum wage is a direct tax on less skilled labor and not so much on employers.

EG July 1, 2011 at 9:42 am

You guys are wrong. And I don’t understand why you don’t understand why you are so wrong. The Center of American Progress said that raising the minimum wage, again, will stimulate the creation of 50,000 new jobs.

I would be excited at this opportunity of stimulating growth, and providing good living wages to help grow the middle class and working American families.
http://online.wsj.com/article/SB10001424052702304447804576411903821123330.html?mod=rss_opinion_main

I can’t believe you guys have never through about that.

tdp July 1, 2011 at 4:15 pm

Dropping an atom bomb on LA would create tons of new jobs in the construction, nuclear disaster cleanup, and pharmaceutical industries (imagine the rise in demand for cancer drugs!), not to mention the film industry (to replace all the dead movie stars), environmental sciences (studying the effects of radiation on endangered seaweed), and the expansion of programs such as ACORN (to replace all the dead liberals). Plus, by killing off 10 million people, 10 million previously unemployed people can get jobs replacing them. The economy is stimulated! We win! Yay!

jcpederson July 1, 2011 at 5:03 pm

Let me play hippie’s advocate:

Alan and Bruno are unemployed teens. They are unemployed by choice – they have enough skills, and they are hireable for low-paying jobs, but they turned down the job offers because minimum wage was not attractive to them. Instead they cause trouble that leads to an increased strain on the police and public health system. They are a marginal net negative on society.

Then the minimum wage goes up. Now Alan’s price has been met, and he aprons up for the working world. He has more money to spend now, and this extra cash leads Bruno to go into business for himself, selling comic books to Alan. What’s more, the police and hospitals don’t need to spend so much money on the mischiefs of unemployed youth, that money is freed up for the taxpayers to create jobs with it, all because legislators first demanded a higher minimum wage.

(disclaimer for the terribly earnest: I do not necessarily believe all this scenario; I’m just presenting the argument)

EG July 1, 2011 at 7:24 pm

I’ve had this conversation with mildly intelligent leftists, and close friends, whom in the end were more than willing to admit that minimum wages hurt poor minority youths the most, but were in favor of them because they helped high school kids in richer middle class neighborhoods; ie the people who need them the least. At which point my jaw dropped as I stared at them, contemplating that we actually agreed 100% on the issue and its effects…but that they were still incapable of realizing why this was not a good idea.

Leftists understand these arguments, at least the mildly intelligent ones (few as they are). Its just that…they actually agree with their effects.

Name Redacted July 4, 2011 at 2:46 am

because leftism and most socialisms in general are about stealing from others for your own ingroup. These leftists want money taken from others and given to people like them.

Gil July 2, 2011 at 4:44 am

I presume the Libertarian comeback is that there should be no welfare payments as everyone should rely on charities. In other words, if Alan and Bruno thought that the first wage rate was too low then they’d simply go without and bum off charity, find that unpleasant and suddenly the first wage rate didn’t seem so bad after all and become employed.

Ghengis Khak July 2, 2011 at 6:27 pm

I have never heard this argument, so I’d like to pursue it a little.

If a firm can profitably hire Alan at the higher minimum wage, couldn’t Alan just go get a job at that above minimum wage regardless of the legislated minimum?

vikingvista July 2, 2011 at 7:27 pm

Setting a higher minimum wage had no effect on Alan and Bruno. Those jobs that they took were just as available to them before the MW was set higher. All the higher MW did was to outlaw those jobs that Alan and Bruno didn’t want anyway.

All MW laws do is draw a line. The laws don’t dole out productivity or resources. It raises nothing. All it does is ban.

Sam Grove July 1, 2011 at 7:59 pm

No YOU are wrong. (argument by assertion)

Obviously the folk at the Center of American Progress know more about choosing a sexy name than about economics.

vikingvista July 2, 2011 at 12:49 am

The minimum wage is a hatchet. It doesn’t lift anything. It truncates.

Ben July 1, 2011 at 9:42 am

@Michael: I’m not on the minimum wage today. One reason I’m not is that my first job was BELOW minimum wage. I was 14 years old, in the early 70′s, and I worked for a local veterinarian for $1 per hour. For $1/hr, I washed dogs, fed animals, and cleaned up poop from dog runs. I learned that when there was nothing to do, I should find something to do, or there was no point in paying me to be there. I learned that if I worked hard and saved my money, I could buy myself that new digital watch I wanted. I learned that I wanted to obtain an education and more marketable job skills so I would not be shoveling dog crap when I was 47. I’m not sure if what my employer did was legal or not, but the life lessons I learned there were worth much much more than the $1/hr wage. I’m thankful for that experience, and I find it painful to think that such experiences don’t legally exist for young people today.

vidyohs July 1, 2011 at 10:22 am

I had much the same experience in the mid-1950s. We lived in a small central Texas town of 1,000 people, our town largely served farmers and ranchers, and there wasn’t a whole lot of job opportunities for someone without land of their own to work on, or whose folks didn’t own some sort of business.

I did what I did, when I could, because if I didn’t I had zero spending money, and for a boy in his middle teens that was a killer of a situation.

What I thought of looking at the cartoon was it is a pity, that in America land of the free entrepreneur, we don’t teach out children from birth on that the day will come when they will have to take care of themselves by satisfying customers in some fashion, and so prepare them for that eventuality not by teaching them about jobs but teaching them about business, business in general and capitalism in particular.

Now in the cartoon a young man is looking at a ladder with no lower rungs. Okay part of teaching our children about business is to teach them to not expect there to be rungs provided, they must craft and carry their own rungs with them, so that when faced with that situation they can insert their own rungs and climb away.

Instead we let the looney left victim mentality deliberately implanted by all of our education and children enter the work-a-day world expecting to be showered with high paying opportunities as their birthright. They can’t deal with it and another government subsidy is created.

Slappy McFee July 1, 2011 at 10:02 am

Heard some pundit state on the radio yesterday, “If you think that the minimum wage is a bad thing, then you don’t understand economics”

I’m surprised my airbags didn’t deploy from banging my head on the steering wheel.

Gil July 2, 2011 at 4:46 am

Now I miss the Like button too! :P

Michael Bourne July 1, 2011 at 11:20 am

Thanks for all the replies guys. I’ve got to leave my pc now, and won’t be back til Monday, when I’ll try to remember to reply. My questions were to encourage people to tell their stories, and to try an establish that this isn’t just a hypothetical discussion.

Briefly, I wasn’t unaware of the arguments against the min wage, but it’s worth pointing out that the market dynamic is not the only one operating in society. If a society decides that it wants a minimum wage (and if you think it’s a bad idea it’s up to you to persuade us, as I know you’re trying to do) then it’s up to business (and job-seekers) to adapt to that, as I think you’d all agree.

Gotta go, thanks again

Mike

EG July 1, 2011 at 11:28 am

“If a society ”

Who’s a “society”? How does a “society” decide such a thing? How does a “society” decide to enforce such a thing?

I remember “society” in my native country decided that business people should not exist anymore. So I suppose its just up to business people to adapt to that.

Slappy McFee July 1, 2011 at 12:46 pm

The illusion of a non-voluntary collective is difficult to beat of of people. Someday I hope to find out what a society is also.

Greg Webb July 1, 2011 at 12:27 pm

Micheal, you said, “if a society.” So, if 50% +1, of those voting ( i.e., a “society”) decide that you should be conscripted into government service cleaning toliets, then you will just have to adapt to that. LOL! You really have your doublespeak and doublethink down pat. You should stop the pompous moralizing, quit trying to use government coercion to do what you want them to, and, instead of trying to change the world through government, change yourself by listening to those who know more than you do and helping those who are really in need.

PoliteEdward July 1, 2011 at 12:38 pm

“If a society decides that it wants a minimum wage…then it’s up to business (and job-seekers) to adapt to that, as I think you’d all agree.”

I would not agree with what you seem to be saying. I assume you are talking about government minimum wage laws.

If Alice and Bob agree to exchange labor for money at some rate, it would be immoral for Carl, Dave, and Eunice to advocate government force against Alice and Bob. Neither Alice nor Bob should be kidnapped and imprisoned by government employees for peaceful trade.

If you are talking about non-coercive societal responses to certain wage rates, then I agree. For instance, if Carl, David, and Eunice publicly declare they’ll boycott all products produced by certain wage rates, it is up for Alice and Bob to take that into account.

Economiser July 1, 2011 at 4:00 pm

Others have already criticized your “society” point. To add on to that, if you support a US minimum wage of $7.25, why are you okay with people in other countries being paid less than that?

You’re willing to accept the US federal government’s use of force to ensure that no American be paid less than $7.25/hr. It seems the least you can do, from a personal standpoint, is to support a similar standard for all people everywhere. Are third-world peasants less deserving of a minimum wage than Americans? You, Michael, have it in your power to only buy goods and services wherein every person who worked on them was paid at least $7.25/hr. If you’re willing to force other consumers to pay that price for labor, the least you should do is be willing to pay that price consistently for all labor involved in goods you purchase, whether American labor or foreign labor.

sethstorm July 1, 2011 at 3:26 pm

The minimum wage is a measure to make slavery uneconomic. Nothing more.

That cartoon also incorrectly presumes that government doesn’t have the capability to restore what may have been “lost” by such raise. Why should a business be exempt from upward market forces?

EG July 1, 2011 at 3:43 pm

Are you being sarcastic? Sometimes I get confused.

“Why should a business be exempt from upward market forces?”

Huh?

“presumes that government doesn’t have the capability to restore what may have been “lost” by such raise”

Huh? Oh, you mean Welfare!

“The minimum wage is a measure to make slavery uneconomic.”

What now? Are you people for real? You guys were never 18?

Methinks1776 July 1, 2011 at 4:12 pm

Slavery is not defined my wage rate, fool.

This is at least the 800th you’ve heard that on this blog alone.

HaywoodU July 1, 2011 at 6:43 pm

Where ya been, friendo?!

Greg Webb July 1, 2011 at 7:14 pm

Seth, I mind is a terrible thing to waste. Quit watching Comedy Central and read some books by Thomas Sowell and Walter E. Williams.

sethstorm July 1, 2011 at 4:21 pm

You’d have a point if there was a balanced market, if not one that was a “seller’s market” for labor.

“Huh? Oh, you mean Welfare!”
No, by giving less ways for businesses to avoid hiring people in direct, secure means. Instead of forcing people to work, make it harder to not provide an upward opportunity for work. Make work attractive enough on its own merits, not as a bad deal made good by (business-caused) desperation.

The whole “x isn’t worth y” argument falls flat when businesses are the ones that make the actions to fire people or hire less. What you are stating there, is that business has every ability to use its scale and size to force down wages and conditions while it is considered wrong to give that ability to any other participant.

EG July 1, 2011 at 5:13 pm

“You’d have a point if there was a balanced market, if not one that was a “seller’s market” for labor. ”

Is there any period where you can show me where wages were FALLING, overall?

“No, by giving less ways for businesses to avoid hiring people in direct, secure means.”

Huh? What is an “indirect, insecure” means of hiring someone, and why should anyone care?

“Instead of forcing people to work, make it harder to not provide an upward opportunity for work.”

Huh? Opportunity for upward mobility isn’t the goal of any particular employer. Its the responsibility of the individual.

“Make work attractive enough on its own merits, not as a bad deal made good by (business-caused) desperation”

So if we made gas-pumping jobs pay $35/hour, they would be very attractive and people would flock to them! Except that…do you see something missing here? No?

“The whole “x isn’t worth y” argument falls flat when businesses are the ones that make the actions to fire people or hire less.”

Huh?? I’m so very confused.

“What you are stating there, is that business has every ability to use its scale and size to force down wages and conditions while it is considered wrong to give that ability to any other participant.”

That’s so ridiculous, I would imagine you’re joking! Again, can you point to any point in time when wages were REDUCED, overall? By your “logic”, all jobs would pay minimum wage jobs…because WHY would any employer pay more than minimum wage?

Why? :p

Sam Grove July 1, 2011 at 8:05 pm

The people who complain most about low wages are likely the same people who complain about rising prices.

They don’t see the connection.

Gil July 2, 2011 at 4:49 am

If the minimum wage block the unskilled from employment then why isn’t there huge unemployment as most people start off as unskilled?

vikingvista July 2, 2011 at 9:40 am

Time, maturity, and formal education.

Name Redacted July 4, 2011 at 2:54 am

There is, actually. Look at black young males? 40% unemployment.
A policy created to keep blacks poor has succeeded in keeping many poor.

John Dewey July 2, 2011 at 5:40 am

Gil,

First, the unemployment rate among young workers is very high. I f you followed the link Don provided above to Mark Perry’s blog, you would see that the unemployment rate for teenagers is 24%,

Second, I disagree with your argument that “most people start off as unskilled”. I think most young folks have some sort of training before they enter the workforce. Please note that I wrote “most young folks”, not “all young folks”.

Gil July 2, 2011 at 6:37 am

I mean as in if people who are unskilled while teenagers, can’t get the skills and are thus are unemployable so why isn’t the unemployment rate 24% in all age groups? Then again, many teenagers don’t seek employment in the same vein that the unemployment rate of 10 year olds is close to 100%.

John Dewey July 3, 2011 at 11:37 pm

Gil: “many teenagers don’t seek employment “

The unemployment rate for teenagers only includes in the denominator those teenagers who are seeking work.

Gil: “if people who are unskilled while teenagers, can’t get the skills and are thus are unemployable so why isn’t the unemployment rate 24% in all age groups?”

There are numerous opportunities for unskilled workers to obtain skills while they are unemployed. The point is, though, that they suffer economic hardship during this period of their lives precisely because they are priced out of the market by minimum wage laws. In other words, most could be employed while at the same time learning a new trade – except for the restrictions caused by minimum wage laws.

supo July 2, 2011 at 10:04 pm

Correct me, if I’m wrong, but the automotive industry was devastated by minimum wages & other perks that were foisted upon them by unions. I understand that they played a major role in setting their pay scales & benifits & that these were not mandated by the government, but in the end it is the same. After all when they hire someone, anyone they must pay them whatever they & the unions agreed to, or the minimum.

Another thought; Society decides whether things are good or bad on a daily basis, it’s called the free market.

John Dewey July 4, 2011 at 8:21 pm

Correct me, if I’m wrong, but the automotive industry was devastated by minimum wages & other perks that were foisted upon them by unions

Supo, has the automobile industry ever paid a wage which was anywhere near minimum wage. If the minimum wage was a problem for that industry, auto manufacturers would not have agreed to wages which are multiples of that wage level. The competitors of GM and Ford which are taking share from them are paying much more that minimum wage.

I do not agree that unions were able to impose their demands on GM, Ford, and Chrysler. Rather, leadership at those companies chose to avert strikes in order to preserve short term profits. That they sacrificed the long term viability of their companies – and granted outrageous union concessions – apparently mattered not at all to the Big Three executives.

IMO, it was executive management of U.S. auto manufacturers who let down the auto workers and the shareholders. My guess is that they did so to preserve short term bonuses, though I do not have evidence to support that suggestion.

supo July 4, 2011 at 11:15 pm

John,
That’s my point entirely. The industry has never paid the national minimum wage or anything close to it. They have been paying much more. They have been paying a “Minimum hourly or salary rate” that is unique to their industry but is still “a” minimum wage. Much like the unions, the government picks an arbitrary rate & says this is what workers are worth minimally. Each time they negotiate, the rate & the benefits go higher. So with each increase, whomever the employer may be, they must make a decision to keep these workers or to let them go.
As far as unions imposing their demands on the the “Big three” I’m not privy to what goes on in the negotiations, but the results would certainly indicate that the unions are getting pretty much what they want, regardless of what they or managements motives are. I don’t buy your premise that management is more to blame because they gave in to the demands.

John Dewey July 5, 2011 at 5:00 am

supo: ” the results would certainly indicate that the unions are getting pretty much what they want, regardless of what they or managements motives are.”

If that’s true, then that’s evidence that management is to blame for American car manufacturers not remaining competitive with Toyota, Honda, and Hyundai.

The role of the labor union in negotiations is to obtain the best deal for its members, The role of management is to ensure that labor concessions do not prevent short term profits and do not endanger the long term viability of the firm. Management negotiators either ignored the second responsibility or else underestimated the ease at which new competitors could overcome barriers to entry. In either case, it was management that failed.

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