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July 24th, 2009

Minimum Wage

Today, our federal government thought best to increase minimum wage from $6.55 to $7.25.  I think this is a bad idea, but, of course (because you know me...) not for the same reason that conventional conservatives think.

I believe that most employers look at the minimum wage as a baseline for pay, and that's a dreadful mistake.  Having a minimum wage justifies paying people the minimum wage, even if that minimum wage isn't enough to live on.  If you're the kind of person who can pretty much only get a minimum wage kind of job, it doesn't really matter if you stay in your job or move a competing job, you'll pretty much be paid the same.  If there were no minimum wage, however, employers would have to actually pay attention to what they were paying their employees instead of saying, well, this is the minimum that I'm allowed to charge and that's all you'll get from me.  If employers set their own wages, there'd be a lot more differentiation between jobs, and some of those employers might actually stop and think, "Hrmmm.  How much do my employees actually need in order to live around here?"

Besides, raising or lowering a minimum wage doesn't always have its intended consequence.  Raising a minimum wage may help a lot of minimum wage employees out, however (let's put on our economist cap, once again) the employer really only cares about its bottom line: how much profit will it make?  If the input costs of a product increase, in order to maintain a constant amount of profit, the price of that product must necessarily go up.  Alternatively, the employer might choose to try to maintain a constant amount of profit by also maintaining a constant input cost, i.e. decreasing the amount of labor.  The end result is that either unemployment goes up or prices for goods and services goes up.  Neither of these is a particularly good consequence.

But of course, if the government is to have a minimum wage, the government would look utterly foolish if that minimum wage was so out of line with reality that it would be completely impossible to survive on it.

If you ask me, the best solution, as far as human equity, is to get rid of minimum wage in entirety.  It doesn't really help anyone as much as pure competition in the labor market would.

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XSG - 1 G 2 Many
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