Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19
Silver Is Cheap – And Getting Cheaper - 7th Oct 19
Stock Market Back to Neutral - 7th Oct 19
Free Market Capitalism: Laughably Predictable - 7th Oct 19
Four Fundamental Reasons to Buy Gold and Silver - 7th Oct 19
Gold and Silver Taking a Breather - 7th Oct 19
Check Engine Warning Light ECU Dealer Diagnostic Cost - Land Rover Discovery Sport - 6th Oct 19
Natural Gas Reloads For Another Price Rally - 6th Oct 19
Understanding and Purchasing different types of Plastic Building Materials Online - 6th Oct 19
Craig Hemke: Ignore the Elliott Wave “Buffoons” Calling for a Gold Crash - 6th Oct 19
Stock Market 6 Month Trend Forecast Conclusion - Video - 6th Oct 19
The True Causes Behind the Yield Curve Inversion and Gold - 5th Oct 19
Strategies on how to be a Successful CFD Trader - 5th Oct 19
Gold Stocks Correction Underway - 5th Oct 19
Climate Change When the Levee Breaks - 5th Oct 19
Federal Reserve Bank ‘Guarantees’ Dow Will Not Sink Below 26k - 5th Oct 19
The Russell and Transportation Tell A Completely Different Stock Market Story - 4th Oct 19
Confidence Drives the Economy and Trump’s Trade War Is Killing It - 4th Oct 19
ADL Predicts Crude Oil Prices Will Fall Below $40 - 4th Oct 19
Investing Money? Why You Need a Reputable Accountant - 4th Oct 19
Stumbling Manufacturing and Rising Gold – Now or Later? - 4th Oct 19
Silver Eyes Fourth Quarter Rebound - 4th Oct 19
Gold Price Forecast to Exceed $10,000/Ounce - 3rd Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Politicians Waging War on Work

Economics / Economic Theory Feb 13, 2013 - 06:51 PM GMT

By: MISES

Economics

Nicholas Freiling writes: Employment law is a mainstay of state economic policy. Few question its efficacy as a means to correct “market failures”—like unlivable wages for meaningful work—that would leave society in shambles. In fact, no serious debate exists among American policymakers about the benefits of such laws. Their utility is simply assumed.

But laws that restrict or stipulate the terms of voluntary employment contracts stifle economic progress and make life harder for everyone—even those for whom the laws were designed to aid.


Minimum wage is the most basic example of such a law. By outlawing employment below a certain wage-rate, the state ensures that no one works for less than what its officials consider a “living wage.” The first federal minimum wage legislation was the Fair Labor Standards Act.[1] Since its passage in 1938, the bill has been amended many times—usually to adjust the minimum wage to account for inflation. Today, the federal minimum wage is $7.25 per hour.

In the act, Congress determines that “the existence … of labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers” causes inequity, burdens commerce and “the free flow of goods in commerce,” and leads to labor disputes that further hamper free commerce.[2] Minimum wage is their solution to this problem.

But what Congress did not know (or chose to ignore) was that employers cannot pay an employee more than that employee’s discounted marginal revenue product—their contribution to the employer's firm's revenues. For example, if an employee generates $10 of revenue for their employer every hour, their employer will not pay them more than $10 per hour. Otherwise, their contributions to the firm would amount to net loss. Employers cannot simply raise every employee’s wages without regard for the employee’s marginal revenue product.

The unseen effect of minimum wage is now made clear: all workers who are unable to generate more revenue per hour for their employer than the legal minimum hourly wage are laid off. As Murray Rothbard writes,

If the minimum wage is, in short, raised from $3.35 to $4.55 an hour, the consequence is to dis-employ, permanently, those who would have been hired at rates in between these two rates. Since the demand curve for any sort of labor (as for any factor of production) is set by the perceived marginal productivity of that labor, this means that the people who will be dis-employed and devastated by this prohibition will be precisely the 'marginal' (lowest wage) workers … the very workers whom the advocates of the minimum wage are claiming to foster and protect.

The "marginal" workers Rothbard describes often include inexperienced teenagers, immigrants, and the disabled. For these people, employment is legally impossible under a minimum wage law. They are permanently dis-employed. To deny this effect, according to Ludwig von Mises, is “tantamount to a complete disavowal of any regularity in the sequence and interconnectedness of market phenomena.”

Why, then, do so many continue to advocate minimum wage as a means to subsidize the working class?

The fact is, many such advocates choose to ignore economic reality in favor of more “nuanced” arguments. Consider attorney and writer Carolyn Rosenblatt. In a Forbes.com column published last winter advocating minimum wage for home care workers, she writes,

For anyone who might think [extending minimum wage to home care workers] is not a good idea or that it puts too much burden on the small business employer who has to pay more now to the worker, think about this: would you want your aging loved one to stay in his or her home as long as possible? Are you willing to do all the physical chores of care-giving yourself?

For Rosenblatt, economic law, small business, and market forces are not important. What matters for her (and her intellectual allies) is cognitive resonance—feeling like home care workers are paid as much as she thinks they deserve, all the while refusing to acknowledge that wages are market prices determined by supply and demand.

Arguments like this are all too common among proponents of the minimum wage. They acknowledge the economic problems with their ideas yet advocate them anyway. There is no other explanation. While Rosenblatt and those like her may have the best of intentions, their willful ignorance of economic reality is blatant and hardly forgivable.

Of course, not all advocates of minimum wage are ignorant. Unions, for example, have a strong interest in supporting minimum wage. By doing so, they eliminate competition from those willing to do their work for less. Racists and prejudiced people also benefit from minimum wage. If employers must pay a minimum wage to whomever they hire, they can disregard the wage-demands of potential employees and simply ignore applications from those they hate. This was the reasoning behind the predominantly white Mine Workers’ Union of South Africa when they wrote regarding the application of minimum wage equally to both whites and blacks,

The real point on is that whites have been ousted by coloured labour. It is not because a man is white or coloured, but owing to the fact that the latter is cheap … when that [minimum wage] is introduced we believe that most of the difficulties in regard to the coloured question will automatically drop out.

Minimum wage, then, is hardly the innocent idea its supporters suspect it to be. Like all other forms of market intervention, it is hijacked by those with evil intent—those who seek to use the violence of the law to serve their own ends.

Needless to say, the harms of minimum wage are hardly a mystery to economists—especially those of the Austrian bent. So why bring this up now?

Because despite the liberty movement’s success in undermining the intellectual foundations of state interventionism, the most basic economic truths have yet to be absorbed into public opinion. In fact, just two years ago the Public Religion Research Institute found that two-thirds of Americans support raising the minimum wage to $10 per hour. Among these supporters are 41 percent of self-described Tea Partiers and 43 percent of “Americans who most trust Fox News”—those who claim to be advocates of economic liberty.

No doubt, libertarians have come a long way. Austrian economics is more popular now than ever. Even on Capitol Hill, the ideas of sound money, financial austerity, and economic liberty have become impossible to ignore. But if two-thirds of the American people maintain support for the flawed idea of minimum wage, libertarians still have a long way to go.

Nicholas Freiling is a freelance writer, student of economics at Grove City College and alumnus of Mises University 2011. He is currently Editor-in-chief of The Collegian (Grove City College student newspaper). Follow him on Twitter @NickFreiling See Nicholas Freiling's article archives.

© 2013 Copyright Nicholas Freiling - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules