Though I wrote this as a past current event, the concept still remain relevent, especially in the harmful wake of the recent minimum wage hike.
Though barely a week has passed since the mid-term elections, Democrats are already taking pot-shots at the U.S. economy. According to a report by CBS and the Associated Press, the newly elected officials are readying their "maximum effort" to raise the federal minimum wage. From the article: "Sen. Edward Kennedy of Massachusetts said Thursday that increasing the federal minimum wage from $5.15 to $7.25 would be his top priority as chairman of the Senate Committee on Health, Education, Labor and Pensions. On the House side, incoming Speaker Nancy Pelosi, D-Calif., already has listed an increase in the minimum wage as one of the issues that would be taken up during the first 100 hours of the next Congress." What the Democrats do not tell you, however, is that the minimum wage never has--and never will--raise the standard of living for the poor. In fact, minimum wage legislation can only harm the economy.
This legislation, put simply, outlaws the labor of workers whose productivity is worth less than the minimum wage. If the productivity of a man's labor is worth only $4.15 per hour, but the minimum wage is $5.15 per hour, employers are prohibited by law from hiring him. They cannot simply hire the man at the higher rate, because the cost of his labor would outweigh the benefits. Workers whose labor is worth less than the minimum wage will necessarily be fired, and the supply of labor on the market will then increase. If the supply of labor increases more quickly than the demand for labor, the legal wages at which employers hire new workers will necessarily be lower than before the minimum wage laws were enacted! Minimum wage laws not only result in unemployment, but also in the decline of real wages.
Employers do not always fire workers; when they can, they will also raise the prices of the products they sell. This results in higher costs of living for everyone--including minimum wage workers. The workers who are not fired might be making more money, but they will also start paying more for the products they buy. A forced increase in wages is not an increase in purchasing power; it is almost always the opposite.
The minimum wage also decreases competition. Existing employees hired at the minimum wage are no longer threatened by anyone wishing to perform the same quality of service for a lower price; this means the quality of work at and around the level of the minimum wage will decline, and productivity will drop. Similarly, existing companies who already pay their workers higher than the minimum wage see no ill effects, but their smaller competitors cannot afford to pay their employees when wages are forcibly increased; this means that small, local businesses who provide great services (but pay their workers less) will necessarily go under--not because of market forces, but because of legislation. This is why special interests--such as unions and monopoly-seeking corporations--are always lobbying the government for wage regulation; they can drive out all competition and monopolize the market by having some laws passed.
The "minimum wage argument" claims that the standard of living can be increased with legislation. If this were true, the minimum wage could be raised to $100.00 per hour and no ill effects would be seen, but this is obviously absurd. Lawmakers know the minimum wage is absurd, and that any forcible increase in wages over the market value will cause the aforementioned ill effects; this is precisely why lawmakers call for wage increases "over time," and why they don't call for wage increases to $30 / hour. They enact these laws to cater to special interests and to get your votes, because they think you are brain-dead. They expect you to think what you are told. It doesn't matter if the laws are completely backward, because John Doe Democrat "likes the sound" of getting paid more per hour without improving the quality of his work. He looks at his boss's wages, becomes envious, and wants a little "piece of the action" without doing what it takes to make his labor worth more. When he goes to the voting booth, he is going to elect the candidate that promised him "magical higher wages." Then he wonders why everything starts becoming more expensive.
In reality, money does not come from magic. It comes from production, and your wages are a reflection of how much your labor produces. Forcing employers to pay their workers more than their labor is worth will inevitably harm the workers, because they will either have to start looking for another job when they get laid off or they'll start paying more for the products and services they buy. Any Democrat who truly wants to raise the standard of living for the working poor in this nation should immediately write their representatives and tell them to oppose raising the minimum wage by any amount, because wage regulation only harms the people it claims to help. Beating this legislation will prevent all of the problems mentioned above; you'll be saving lower-income workers more economic hardship, you'll be supporting your local businesses and sense of community, and you'll keep your economy in good working order.
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Sadly, the opinion in which you present about minimum wage is entirely applicable to the the corrupt system of capitalism in America. However, I ask what if the system were not dominated by the corrupt billionaire owners of large commercial enterprise.
There is valid philosophical logic behind your views of labor being "over-valued" and outweighing the benefits of that labor. However, I can think of no rational example in reality of this principle. If you could furnish one I would be greatly obliged. Nonetheless, the theory hinges on the principle that certain avenues of labor are accurately valued at $5.15, and that any increase in the cost of this labor would lead to cost outweighing benefit. It is more likely that the labor is valued at $5.15 because is actually the smallest possible value that an owner can pay without the supply of labor pool disappearing and finding more subtle employment. The owner does this in an attempt to maximize profits. This drive is clearly seen in the phenomenia of outsourcing. I find it extremely hard to believe that million dollar owners of a large corporation like Nike or Dell can not afford to pay their workers minimum in the United States. However, these companies find cheaper labor outside of the United States. They do this not because the labor is $5.15, but because they make more money paying the laborers less. Nike take a dollars worth of material and sells it, with ever increasing demand, for upwards of 50 times that amount. I see no reason to believe that the company can not afford to pay minimum wage here in the United States.
Furthermore, an increase in prices following a increase in the minimum wage is only the result of corrupt capitalism and the constant drive for profits. Large Corporations in the United States make large amounts of money. This money is highly concentrated at the top and often never finds its way down to the laborer. An increase in the minimum wage attempts to slightly change this high concentration. However, corrupt capitalists refuse to accept making 2 billion instead of 5 billion. Thus they raise prices. Not because they need to, but because they can. Competition can not solve this problem because none of the corrupt business will take the pay cut, and everyone then raises prices to perpetuate the American nobility. The only answer to this problem is government control of prices and a redistribution of wealth. By keeping prices at reasonable amounts, considering material and labor costs, the government is able to shift the concentration of wealth from the few at the top to everyone on a more equal basis. The United States GNP is more than sufficient enough to allow for all its citizens to live comfortably. Anyone who disagrees may just be question whether the United States is the greatest country in the world.
"Furthermore, an increase in prices following a increase in the minimum wage is only the result of corrupt capitalism and the constant drive for profits."
All of your arguments are founded upon this point: that capitalism is inherently corrupt because it seeks a profit. The alternative is socialism, and based on your thoroughly Marxist arguments, it is evident that you support the idea socialism in some form. I refer you to my refutation of the socialist economy.
"However, I can think of no rational example in reality of this principle. If you could furnish one I would be greatly obliged."
As for studies regarding the harmful effects of the minimum wage, see Mises' argument, the study conducted by Brown/Gilroy/Kohen, and the statement made in 1995 by the Joint Economic Comittee in the U.S. (which references many other studies for you to research).
It is quite obvious that you do excellent research, and your arguments are spotless to any conservative or even rational mind. I do not wish to clutter your posts with things i am sure you've researched and already made your decisions on.
But just humor me here
is not the goal of outsourcing to find workers who will produce the same product for less money (in the form of wages or benefits). And when the price of the product does not go down,and benefits are only reaped by the large business owners, is this not corrupt.
If my understanding of why nike, and virtually every other retail clothing operation manufactures products outside the US is incorrect, please correct it.
If it costs them a dollar to make, and they sell it for 50 dollars, where does that 49 dollars go?
"And when the price of the product does not go down,and benefits are only reaped by the large business owners, is this not corrupt."
The prices of products do go down because of offshoring labor; this is the purpose of offshoring in the first place. Sellers cannot merely charge whatever they wish for a product; how well it sells is tied directly to what the largest number of consumers are willing and able to pay, and for mass markets, the lowest price is the best price.
But let's make the assumption (albeit erroneous) that prices don't go down due to offshoring, and people still chose to buy the product. This is not corruption by any reasonable definition; no one forces people to buy the things they buy, and no one forces foreign workers to leave their farms and herds to work in factories.
The profit incentive is what makes the capitalist system so successful; it drives innovation, creates wealth, and increases the standards of living for all participants. Because they stand to make a profit, people offer millions upon millions of helpful services that others voluntarily purchase--and they make that choice precisely because it makes their lives easier and better.
Frankly, the socialist position has never held any water; it made no sense when Marx peddled his garbage, it wrecked an entire civilization (Russia), brought the world into global conflict, and it can't stand its ground even today. Socialism does enjoy a large audience, however, largely because of its entrenchment in the academia; it's very chic these days to hate reason, capitalism, and the West. It's also very wrong.
Money makes the world go around. Though there is just not enough money to go around.
Actually there is. It is a matter of proper allocation.
Excellent essay. But I think you failed to mention that minimum wage doesn't hurt everyone. The people who still get to keep their jobs but at a high wage seem better off. But then again, I may have just missed that part.
I was wondering if you had a body of research to back this up? I got into a debate with someone about this and I couldn't back it up with anything other than unconventional wisdom.