Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Welfare, Minimum Wages, and Unemployment

Economics / Unemployment Jan 22, 2014 - 10:17 AM GMT

By: LewRockwell

Economics

Gregory Morin writes: Of the various flavors of government interventionism in our lives, the minimum wage is perhaps the most welcomed. It appeals not only to our innate sense of “fairness” but also to our self-interest. Its allure may erroneously lead us to the conclusion that because “it is popular,” ergo “it is right.”


The more astute proponents of the minimum wage, however, immediately point to the obvious; namely, that an extreme minimum wage ($1,000 per hour) would be unequivocally detrimental. However, the proponents quickly turn to dismissing this fear by asserting that, empirically, no such job loss occurs when the minimum wage is slowly raised. This is akin to arguing that although fire can boil water, a small fire won’t heat it up. The support for this assertion is the oft-cited 1994 study by Card and Krueger[1] showing a positive correlation between an increased minimum wage and employment in New Jersey. Many others have thoroughly debunked this study and it is significant that the original authors eventually retracted their claims.[2]

Youth and Entry-Level Unemployment

The problem with such “studies” that purport to demonstrate only positive and no negative effects from a rising minimum wage is that it is quite easy to count individuals whose pay went up. What is more challenging, if not impossible, is to count the people that would have been hired but were not. Likewise, offsetting reductions in non-monetary compensation will not show up in a monetarily-focused analysis.

However, empirical economic data is not entirely useless. Such data is more suited to qualitative rather than quantitative predictions (who is affected rather than how much they are affected). For example, basic economics predicts that a minimum wage will necessarily increase unemployment among those with the least experience. Indeed, if we look at the empirical evidence we see exactly that. Looking at the data from the Bureau of Labor Statistics we find that the unemployment rate (June 2013) among 16-19 year olds is 24 percent and among 20-24 year olds it is 14 percent.[3] These values far exceed the unemployment rate (6 percent) of those workers with sufficient experience and skills to make them largely immune to minimum wage pay scales, namely 25-54 year olds. People whose productive value is less than the minimum wage are de facto unemployable. They are denied the opportunity to gain experience and skills, and their exclusion from the job market is a net loss to society.

The minimum wage is just another weapon in the arsenal of the misguided progressive trying to “help” the poor. Their mistake in wielding this weapon is in presuming all workers are similarly situated; i.e., that the vast majority of hourly employees earn minimum wage and that they are uniformly composed of heads of households. In fact the opposite is true. Only 2.1 percent of hourly employees earn minimum wage and of that number over half (55 percent) are 16-24 years old.[4]

How Welfare Brings Down the Asking Wage

So, we know that a sizable number of minimum-wage earners are not in need of a wage that can support a household. But what of the minimum-wage earners who are? We are told repeatedly that minimum wage is not a living wage, so why are not more minimum wage earners simply starving to death? In reality workers earn two wages: one from their employer and one from the state. For example, someone making the current full-time minimum wage earns $15,000 per year, but they are also eligible for additional government benefits that bring their total remuneration to approximately $35,000 per year if they are childless, or up to $52,000 year if they have children.[5] In fact, earning more does not necessarily help one wean himself off this state sponsored support. As wages rise assistance can often decline so precipitously that even earning $1 more can mean a loss of thousands of dollars in aid. This creates a disincentive for the worker to improve and earn more; the perverse incentive here is that we are rewarding the very thing we are trying to eliminate (low wages). These wage subsidies serve only to pervert the normal incentives present in an exchange between employer and employee. Both the employer and the employee are aware of the subsidies, so each is willing to offer less and accept less rather than demand more and offer more.

At first blush one might conclude the employer is making out like a bandit. But there is no free lunch — the subsidies have to come from somewhere. Taxes fund these subsidies. So the employer is not necessarily paying less if its taxes fund the very subsidies its employees are receiving. In fact many employers pay more on net. All employers pay taxes, but only some receive the benefit of subsidized wages. This is a net redistribution from one class of company to another. In essence we are forcing high wage companies to pay low wage companies to keep their wages low.

The Minimum Wage Reduces Worker Productivity

So considering that it is established that minimum wage laws and other forms of wage subsidization are detrimental to the stated goal of improving conditions for those regarded as poor, we must address the question perennially proffered by those who believe one’s salvation can only come via the state: “If not the minimum wage, what then can increase wages?” To answer this question we must understand there are only two possible routes to improving our wages/standard of living. The first method is the unethical route of using force (government) to extract what we want.

The second method, however, is what every rational person would be left with were there no state influence corrupting the incentives that drive their decision-making: improve or augment one’s skills so that they align with those skills currently in greater demand.

Self-improvement through education and/or work experience is the answer to the question: how do I earn more? Government sponsored interference in the market that results in fewer people gaining experience can only serve to frustrate one’s ability to engage in self-improvement. Elimination of the minimum wage is a necessary, although insufficient, first step to improving the economic value of the inexperienced or unskilled.

Gregory Morin, Ph.D. is CEO of Seachem Laboratories located in Madison, Georgia. See Greg Morin's article archives.

You can subscribe to future articles by Greg Morin via this RSS feed.

© 2014 Copyright Gregory Morin- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in