Friday, January 25, 2008

Minimum Wage, The Math Doesn't Add Up

Let's first establish that a minimum wage is not a livable wage, nor should it be. But that is how it is sold to the people. It is sold out of guilt to the vast majority of people that don't make minimum wage because they feel so bad that they make so little. For those that make minimum wage, teenagers, I don't share that guilt.
Why do so many organizations, like unions, push so hard for minimum wage increase when their workers make 6 to 7 times more than minimum wage? It isn't out of compassion. Few people know that their union contracts are tied to minimum wage in that if the minimum wage increases, their pay must increase to maintain the wage difference. Any time a union advocates anything outside of their own contract, you have to question their motives. The only reason minimum wage gets increased is to pander to voters and special interest groups, like unions.

The biggest evidence as to why minimum wage is nothing more than a scheme is in the math of it. The idea of a minimum wage means that no employee may be compensated for their labor at a rate less than minimum wage. That means when it comes to compensation, minimum wage is the floor. To be the floor means to be the lowest point. If you raise the floor, everything on top of it also raises. Not only do the compensations for everyone else but also the prices. Compensation increases because the value of work a doctor does for example compared to a ditch digger does not suddenly decrease because all of the ditch diggers received a raise. Their compensation will increase proportionately.
Because every one's compensation increases, the price of goods also increases because these mandated raises have to be paid for. Therefore, the buying capacity of a person making minimum wage does not increase, but remains flat. Of course this doesn't factor in the fact that now US made goods become more expensive overseas, decreasing exports.

So since minimum wage is all just smoke and mirrors and never has the stated effect, why not get rid of it all together. We'll get rid of illegals because there will no longer be an incentive to hire people illegally. We'll lower the rate of inflation as wages and prices will no longer be arbitrarily adjusted by the income floor. We'll get a little bit closer to capitalism.

1 comment:

zackzilla said...

Indeed my brother from another mother - Poor people are not poor because of low wages. For the most part, they're poor because of low productivity, and wages are connected to productivity. The effect of minimum wages is that of causing unemployment among low-skilled workers.