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The Path to Hell is Paved with Good Intentions – Minimum Wage Laws

roadtohell On July 29th, the national minimum wage will get increased to $7.25 an hour.  In a time when our economy is suffering, this will cause many more jobs to be destroyed.  Have you ever wondered what happened to movie theater ushers, or gas station pumpers, or airport luggage porters?  Minimum wage laws destroyed these jobs because they weren’t worthwhile for businesses to continue to offer those services.  Peter Schiff does a great job explaining how minimum wage laws have resulted in these “lost jobs” in his video blog here: http://www.youtube.com/watch?v=I_IMuxMXd3E.

Bill in Question: Minimum Wage

The good intentions: To provide low skill workers a living wage to keep up with inflation.

The reality: Less jobs and more poverty.  The poor, who this law is intended to help, will get hurt the most.

Those who benefit: Those who are lucky enough to keep a minimum wage job.  Labor unions because there will be less job competition. Also, the politicians because they will be viewed as friends of the working class for their next election.

Conclusion: This is a classic example of an “innocent” solution to a problem.  Unfortunately, as most government solutions go, it’s not so innocent when you realize the truth: it’s coercive and promotes self sacrifice (one of the main themes in Atlas Shrugged if you haven’t read it).  The problem politicians are trying to address is to give low skill workers a living wage to keep up with inflation and the cost of living.  But businesses aren’t in the market for charity.  They are in the market to make profit.  Therefore, this law prohibits businesses from hiring a worker for their true wage.  In a sense, it’s discrimantory.  It prevents businesses from hiring more workers and forces it to choose the few it wants to keep on the payroll.  Also, businesses operating on tight margins will find themselves no longer viable, resulting in more job losses and further unemployment.

Consider looking at this using basic economics 101.  Politicians can’t just set a price without consequences of upsetting the equilibrium that is supply and demand.  When prices are set artificially low, this causes an increase in demand and shortages in product.  When prices are set artificially high, this results in a decrease in demand and a surplus in product.  Wages work the same way when you consider the employee as a product.  When the employee’s wages are artificially set too high, then you are going to see a decrease in demand for them and a surplus of workers (ie. unemployment).

If politicians really wanted to tackle this problem then they should look at the heart of it, which is inflation.  Battling inflation is a beast in itself and would require a much bigger solution than a simple “fix” like minimum wage.  But I think understanding basic economics would be a start.  You can’t base a currency on nothing and expect it to maintain a constant value.  Our dollar now is worth 95% less than it once was before we moved off the gold standard and created the Federal Reserve to print our currency.  Allowing a free market with competing currencies and wages would be a great start, as well as loosening regulation which stifles business and makes it less viable to produce in this country.  But that is a whole new blog for another day…

For additional info, check out this Milton Friedman clip on minimum wage from over 50 years ago: http://www.youtube.com/watch?v=ca8Z__o52sk

Also, check out this great article from Peter Schiff on LewRockwell.com: http://www.lewrockwell.com/schiff/schiff34.1.html

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