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The Minimum Wage: A Political Pressuregroup Product

by on April 21, 2013

Activists focus on the presumption that a Minimum Wage helps the poor, less skilled, and less fortunate people. Basic logic presented by Precious Meddles show that this is not true. Economists focus on the question:  how much does the Minimum Wage  decrease employment? Instead a more pressing question is who does the minimum wage actually benefit?

When Paul Krugman tells you that “there just isn’t any evidence that raising the minimum wage near current levels would reduce employment”, he is, being dishonest and is relying more on his readers’ ignorance.   In a very insightfull blog Steven Landsburg links to research pointing out that the minimum wage does effect employment.

Among the most careful and thoughtful of those researchers are David Neumark and William Wascher, who in their recent book on the subject, conclude that minimum wages “reduce employment opportunities for less-skilled workers and tend to reduce their earnings; they are not an effective means of reducing poverty; and they appear to have adverse longer-term effects on wages and earnings, in part by reducing the acquisition of human capital.”

I hate using the word fair but Steven Landsburg also points out the unfairness and lack of political wisdom  related to a  minimum wage policy as.

Some people voluntarily pay wages to unskilled workers. If we collectively decide that we need more wages paid to unskilled workers, should we turn to the people who have been paying wages by choice and demand that they pay more?[…..]Letting people vote for expensive programs that “somebody else” will finance is a good recipe for getting people to vote irresponsibly.

The minimum income of the poor is  already defined by welfare income. If the minimum wage for a job is below the income that would be earned on welfare there will not be many people applying for the job. The minimum wage = welfare income + a premium (for getting out of bed early and missing out on “leisure”).

If the government only cared about the disposable income the poor (without taking into account bad incentive) it would simply increase out of work benefits. This would subsequently increase the (efficient) wage that employers would need to pay employees. Seeing as this is not done, who does the minimum wage benefit? This is clearly those employed in low skilled jobs, but that are unlikely to be fired. Namely, senior workers in heavily unionized industries.

As Stephanie Lis points out on the Spectator Blog:

The real poverty in society lies with those who are not in work at all. This increase in the national minimum wage will do nothing to improve their chances of a job – rather the reverse.

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