All entries for Monday 02 January 2006

January 02, 2006

Articles on the Minimum Wage

A recent article from the Mises Institute discusses minimum wage legislation.

The rate of unemployment tends to be directly proportional to the excess of labor costs over productivity. In many European countries with official minimum wages of more than $10 an hour, the rate of unemployment is measured in double-digit rates although governments spend massive amounts on make-work projects. Some victims readily submit to their fate and endure a life of idleness and bare subsistence. Many learn to labor in black markets where goods are produced and services are rendered in violation of minimum wage edicts and other regulations and controls. But most victims are young people with little training and know-how who tend to react angrily and violently. Their rate of unemployment actually amounts to multiples of the official rate. And if society should be divided ethnically, youth training and productivity may be lower yet and its rate of unemployment may approach 100 percent. Such a labor situation is laden with anger and fury which not only breeds high crime rates but also, at any time, may turn to violence by mobs of unemployed youth. The recent riots of French youth clearly resembled the riots of unemployed Americans in Watts in 1965, in San Francisco in 1966, Detroit and Baltimore in 1967, Chicago and Cleveland in 1968, and in Los Angeles in 1992.

Read in full here.

Few would dispute that higher wages are a good thing. The same applies to other employee benefits like holiday entitlements, maternity leave and legislation governing layoffs. Benefits accrue to those in employment, but on the other side of the equation you have those who would have been granted a job had employment costs been marginally lower. When it comes to the minimum wage, those on the Ďwrongí side of the equation are the most vulnerable members of society; the very young, the highly unskilled and those susceptable to discrimination.

The welfare system is supposed to compensate these vulnerable groups. The government doesnít want people to make claims indefinitely. Welfare should be a temporary solution whilst a job search is in progress. Iím sure in most cases thatís what happens, but for those with limited literacy, numeracy and experience I bet itís not easy. Raising the cost of employment via minimum wages increases the likelihood of long term dependency.

Suppose such legislation was eliminated and we had jobs paying £1, £2 and £3 per hour. Itís pitiful compensation by average expectations, no doubt. However from the view of the recipient, the benefits arenít just monetary. This paragraph from Walter Williams sums it up well

The primary beneficiaries of so-called McJobs are people who enter the workforce with modest or absent work skills in areas such as: being able to show up for work on time, operating a machine, counting change, greeting customers with decorum and courtesy, cooperating with fellow workers and accepting orders from supervisors. Very often the people who need these job skills, which some of us might trivialize, are youngsters who grew up in dysfunctional homes and attended rotten schools. It's a bottom rung on the economic ladder that provides them an opportunity to move up. For many, the financial component of a low-pay, low-skill job is not nearly as important as what they learn on the job that can make them more valuable workers in the future

Read it in full here.


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