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
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

Welfare, Minimum Wages, and Unemployment

Economics / Unemployment Jan 22, 2014 - 10:17 AM GMT

By: LewRockwell

Economics

Gregory Morin writes: Of the various flavors of government interventionism in our lives, the minimum wage is perhaps the most welcomed. It appeals not only to our innate sense of “fairness” but also to our self-interest. Its allure may erroneously lead us to the conclusion that because “it is popular,” ergo “it is right.”


The more astute proponents of the minimum wage, however, immediately point to the obvious; namely, that an extreme minimum wage ($1,000 per hour) would be unequivocally detrimental. However, the proponents quickly turn to dismissing this fear by asserting that, empirically, no such job loss occurs when the minimum wage is slowly raised. This is akin to arguing that although fire can boil water, a small fire won’t heat it up. The support for this assertion is the oft-cited 1994 study by Card and Krueger[1] showing a positive correlation between an increased minimum wage and employment in New Jersey. Many others have thoroughly debunked this study and it is significant that the original authors eventually retracted their claims.[2]

Youth and Entry-Level Unemployment

The problem with such “studies” that purport to demonstrate only positive and no negative effects from a rising minimum wage is that it is quite easy to count individuals whose pay went up. What is more challenging, if not impossible, is to count the people that would have been hired but were not. Likewise, offsetting reductions in non-monetary compensation will not show up in a monetarily-focused analysis.

However, empirical economic data is not entirely useless. Such data is more suited to qualitative rather than quantitative predictions (who is affected rather than how much they are affected). For example, basic economics predicts that a minimum wage will necessarily increase unemployment among those with the least experience. Indeed, if we look at the empirical evidence we see exactly that. Looking at the data from the Bureau of Labor Statistics we find that the unemployment rate (June 2013) among 16-19 year olds is 24 percent and among 20-24 year olds it is 14 percent.[3] These values far exceed the unemployment rate (6 percent) of those workers with sufficient experience and skills to make them largely immune to minimum wage pay scales, namely 25-54 year olds. People whose productive value is less than the minimum wage are de facto unemployable. They are denied the opportunity to gain experience and skills, and their exclusion from the job market is a net loss to society.

The minimum wage is just another weapon in the arsenal of the misguided progressive trying to “help” the poor. Their mistake in wielding this weapon is in presuming all workers are similarly situated; i.e., that the vast majority of hourly employees earn minimum wage and that they are uniformly composed of heads of households. In fact the opposite is true. Only 2.1 percent of hourly employees earn minimum wage and of that number over half (55 percent) are 16-24 years old.[4]

How Welfare Brings Down the Asking Wage

So, we know that a sizable number of minimum-wage earners are not in need of a wage that can support a household. But what of the minimum-wage earners who are? We are told repeatedly that minimum wage is not a living wage, so why are not more minimum wage earners simply starving to death? In reality workers earn two wages: one from their employer and one from the state. For example, someone making the current full-time minimum wage earns $15,000 per year, but they are also eligible for additional government benefits that bring their total remuneration to approximately $35,000 per year if they are childless, or up to $52,000 year if they have children.[5] In fact, earning more does not necessarily help one wean himself off this state sponsored support. As wages rise assistance can often decline so precipitously that even earning $1 more can mean a loss of thousands of dollars in aid. This creates a disincentive for the worker to improve and earn more; the perverse incentive here is that we are rewarding the very thing we are trying to eliminate (low wages). These wage subsidies serve only to pervert the normal incentives present in an exchange between employer and employee. Both the employer and the employee are aware of the subsidies, so each is willing to offer less and accept less rather than demand more and offer more.

At first blush one might conclude the employer is making out like a bandit. But there is no free lunch — the subsidies have to come from somewhere. Taxes fund these subsidies. So the employer is not necessarily paying less if its taxes fund the very subsidies its employees are receiving. In fact many employers pay more on net. All employers pay taxes, but only some receive the benefit of subsidized wages. This is a net redistribution from one class of company to another. In essence we are forcing high wage companies to pay low wage companies to keep their wages low.

The Minimum Wage Reduces Worker Productivity

So considering that it is established that minimum wage laws and other forms of wage subsidization are detrimental to the stated goal of improving conditions for those regarded as poor, we must address the question perennially proffered by those who believe one’s salvation can only come via the state: “If not the minimum wage, what then can increase wages?” To answer this question we must understand there are only two possible routes to improving our wages/standard of living. The first method is the unethical route of using force (government) to extract what we want.

The second method, however, is what every rational person would be left with were there no state influence corrupting the incentives that drive their decision-making: improve or augment one’s skills so that they align with those skills currently in greater demand.

Self-improvement through education and/or work experience is the answer to the question: how do I earn more? Government sponsored interference in the market that results in fewer people gaining experience can only serve to frustrate one’s ability to engage in self-improvement. Elimination of the minimum wage is a necessary, although insufficient, first step to improving the economic value of the inexperienced or unskilled.

Gregory Morin, Ph.D. is CEO of Seachem Laboratories located in Madison, Georgia. See Greg Morin's article archives.

You can subscribe to future articles by Greg Morin via this RSS feed.

© 2014 Copyright Gregory Morin- 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