December 27, 2005

Minimum Wage

Here's an idea you don't hear very often.

    Good intentions, when guided by error and ignorance, may have undesirable consequences. There is no better example than minimum wage legislation.
    It means to raise the wages and improve the living conditions of poor workers but actually condemns many to chronic unemployment. It forcefully raises the costs of unskilled and inexperienced labor and thereby lifts it right out of the labor market. Yet, many politicians who neither own nor manage a business and do not employ such labor never tire of lamenting and deploring low wages and promising to raise the wage minimum by law and regulation.

Woe to the politician who would dare speak of repealing the minimum wage.

(tip to CF's Policy Blog)

Economics and Markets Posted by AlexC at December 27, 2005 5:35 PM

Thomas Sowell makes a forceful argument that minimum wage laws are racist as well. Without it, employers cannot afford to be racist -- they would be undercut by a more open-minded employer and could not compete.

Only rent control is more damaging and equally pernicious. It's a failure everywhere it is tried, but as you say, you cannot get elected trying to repeal it.

Posted by: jk at December 27, 2005 6:37 PM

And think how restoring freedom in the labor market might effect all those "jobs that Americans refuse to do" vis a vis illegal immigration.

The minimum wage debacle is an example of Democracy's failure. Like the inverse relationship between higher tax rates and tax revenues, legislating higher wages actually reduces real incomes (through unemployment). Yet an unwary electorate continues to reward those who bring us both, because "everyone knows" that wages would be higher if only business owners weren't so greedy.

But as Robert Heinlein said, "If "everybody knows" such-and-such, then it ain't so, by at least ten thousand to one."

Posted by: johngalt at December 28, 2005 1:50 PM

Time for my old whine (a '73 beaujolais?): you have to explain supply&demand to show why minimum wage doesn't work, you have to explain the Laffer curve to show why lower taxes work; the "other folks" can just claim efficacy.

Posted by: jk at December 29, 2005 12:05 PM | What do you think? [3]