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oscargam980-blog · 8 years ago

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Minimum Wage

I want to start this blog off with an easy one: minimum wage.

To understand wages, we first need to gain an understanding of basic economics. The Law of Demand states: if all other factors remain equal, the higher the price of a good, the less people will demand that good. People have a limit to how much they are willing to pay for any good, called Willingness to Pay (WTP). This price is higher for higher quality goods and lower for lower quality goods. Very straightforward stuff.

The Law of Supply similarly states: the higher the price of a good, the higher the quantity supplied, because producers will see higher revenue the more of a good they can sell at a higher price.

These two laws each create a linear graph, sloping downward for demand and upward for supply, comparing quantity to price. When these two graphs meet, the point at which they intersect is called the Equilibrium Point. The price at this point is called the Equilibrium Price. This is the most a consumer is willing to pay for a good and the least the producer is willing to sell it for.

You might be asking yourself, what does this have to do with wages? Well in fact wages are simply a good, produced by the worker and sold to the employer. You, as a worker, are selling your time and efforts to your boss for a price.

Your wage represents the most amount of money that your boss is willing to pay for your services, and the least amount that you are willing to accept.

So what happens when you artificially raise the price above the point of Equilibrium? You get something called Deadweight Loss. Deadweight Loss is the loss of economic efficiency to its participants due to outside forces. Taxes are an example of something that can cause Deadweight Loss.

Deadweight Loss causes everyone involved to be worse off and results in an under-utilization of economic resources.

So why is raising the minimum wage bad? The four main reasons are:

Job Loss: Raising the minimum wage forces business owners to pay more than they are willing for certain work. To make up for this loss, they will hire fewer people in order to achieve the same average expenditures for said labor. So while a few lucky workers are making better wages, they have much stiffer competition getting their jobs, are much more easily replaceable (since so many more people want the job), and the workers as a whole make less money on average. Seattle, for example, adopted a plan in 2014 that would raise their minimum wage over time. By 2016, the minimum wage there was $13. The National Bureau of Economic Research found that “the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016.”

Higher Prices: Another strategy of business-owners to make up for the lost revenue is raising the prices of their goods and services. The Deadweight Loss created by the artificial wage hike causes the business to lose profits, as their costs associated with creating some good or providing some service go up as well. All costs involved in manufacturing a good are included in the price formulation, including and especially labor costs. To make up for this loss in profits, the business is forced to raise prices.

Kills Small Businesses: So what happens when a business is forced to raise prices past the Willingness to Pay of their customers? The demand of the customers goes down. A Harvard Study on restaurants found that a “$1 increase in the minimum wage increased the likelihood of a 3.5-star exiting by roughly 14 percent, while having zero effects on the restaurants with five-star ratings.” So basically, increasing minimum wage shuts down smaller businesses who don’t have the resources or capital to make up for the lost revenue. A bigger business could make a deal with a producer, make changes to their manufacturing process, or automate to save money, but a small and struggling business cannot.

Hurts Minorities: 40% of minimum wages workers are black or Hispanic. They are disproportionately affected by all the negative effects listed above. But this affects all low-skilled workers across the board, including teens and entry-level workers. Minimum wage jobs are an opportunity to develop skills and connections that lead to higher paying jobs. Many groups don’t have a chance to develop these skills earlier in life, either due to sub-par schooling, inability to pay for college, or a lack of parental support for their studies. By raising the minimum wage, you are effectively removing these jobs from the equation, and preventing low-skilled workers from becoming higher-skilled workers.

Here are some links that discuss these effects further:

http://www.dailywire.com/news/18037/reality-isnt-fair-ben-shapiro

http://thefederalist.com/2017/05/03/harvard-study-minimum-wage-hikes-cut-entry-level-jobs-harm-poor-minorities/

https://object.cato.org/sites/cato.org/files/four_reasons_not_to_raise_the_minimum_wage.pdf

None of these arguments even take into account one of the most important facts of this argument. That is the fact that raising the minimum wage is in and of itself immoral. If you force an employee to work for a wage he does not want, that is slavery. Similarly, if you force a business owner to hire an employee at a wage he does not consent to, you are essentially pointing a gun to his head and forcing him to do what you want. That is not justice, that is fascism.

Liberal Arguments and Rebuttals:

It is criminal to pay workers so little for their labor. They should get more money for their work so they are paid what they deserve.

It is not a crime to pay someone the amount they agreed to in a contract. If the worker doesn’t want to work for that wage, they are free to seek employment elsewhere.

They are paid the exact amount that their labor is worth in that market due to basic laws of economics. If you want them paid more, you should improve their situation by reducing competition (improving schools will cause fewer low-skilled workers to be produced through the school system, and fighting illegal immigration will reduce the number of low-skilled workers flowing into the market).

Low minimum wages protect big-business interests and hurt the working class. This is one of the causes of income inequality.

As stated above, higher minimum wages actually hurt smaller businesses and leave bigger businesses unaffected.

Higher minimum wages (along with a push for illegal immigration) is a tool of wealthy interest groups to create a new class of slave labor. The minimum wage goes up, pushing American workers out of the low-skilled job market, then corporations employ illegal aliens or visa-holders to take their place, and pay them lower wages. If they step out of line they can be deported or have their visa revoked.

These measures, along with government-subsidized work programs like food stamps, aid only the companies that have the capital and resources to take advantage of them. The Barrier to Entry in a market goes up, making it harder for new small businesses to form. Believe it or not, but minimum wage hikes actually cause more income inequality.

Wages are so low in fast food that taxpayers have to subsidize their pay. How can you defend a free market when it has obviously failed to pay these workers properly?

This argument is mixing up cause and effect. Another basic tenet of economics is that people respond to incentives. If the government offers to give a business money when they aren’t paying their workers enough, THEY ARE ESSENTIALLY PAYING A COMPANY TO UNDERPAY THEIR WORKERS. The company is incentivized to pay their workers less, and so they will.

This is not the free market at work. The existence of these subsidies at all means that the government is already involved and therefore it is not a totally free market. If you take away these subsidies, I guarantee that the wages will go up on their own.

Worker productivity has gone up much faster than wages.

Yeah, well it’s not 1968 anymore. We have smart phones, the internet, and much more affordable automation. Furthermore, the population of the US in 1968 was 200.7 million, and is now 326 million. That, along with population-wide demographic shifts (like increased immigration from certain countries) and the departure of the Baby Boomers from the workforce, has cause a dramatic shift in the demographics of the workforce.

Again, if you don’t think the wages are enough, get the government out of the free market, eliminate the Deadweight Loss, and allow the free market to work as intended.

From CBS: One of the reasons that increases in the minimum wage would not have an impact on unemployment is that in today’s economy an increase in minimum wage would come mostly out of profits. And there is plenty of that to go around.

If you think a company would sacrifice profits for essentially nothing in return without doing something to recuperate those losses, you’re naive.

This article also suggests that they could recuperate these losses out of the CEO’s salary… Keep living in your fantasy world.

Raising the minimum wage doesn’t cause unemployment.

Tell that to Seattle.

Also tell that to the workers being replaced by robots.

Final Thoughts:

The minimum wage applies to all jobs in the country. Think about that. I don’t think flipping burgers is a job requiring the kind of skill that $13 an hour allots. I worked at an IT help desk in college for a while, and I got paid less than that, and let me tell you, as someone who has also flipped burgers for a living, the help desk job was a lot harder.

Being against a rise in the minimum wage is not “anti-worker” or “heartless” or “evil”. It is simply understanding basic economics, observing your environment, and realizing that it is a terrible idea that actually hurts the people it is supposed to protect.

Leftists in favor of the minimum wage openly admit that minimum wage hikes cost businesses money. Many are even intellectually honest enough to admit that there is evidence that these hikes kill jobs.

The main liberal argument (once you get past the moral and emotion-based arguments they love to throw around) for the minimum wage to go up is that they do not believe it kills jobs. From the studies I’ve seen from my understanding of economics, I believe this is fundamentally false. Liberals might flash around studies they believe prove that I’m wrong on this, but even those studies admit that raising the minimum wage raises prices and affects the profits of the business (though they downplay the extent).

Even if raising the minimum wage didn’t cause unemployment, it would cause Deadweight Loss in the economy, hurt small businesses, raise prices, and cause businesses to look for labor oversees. It would also still be a fundamental violation of basic freedoms.

The only other argument that I’ve seen is that “a lot of people want the minimum wage”, as if popular opinion should shape policy. A lot of people wanted slavery to stick around back in the day too, but I think we can all agree that we made a good call in getting rid of that one.

Remember: The REAL Minimum Wage is Zero.

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