© 2017 Michael Swickard, Ph.D. “The real
minimum wage is zero.” Thomas Sowell
It’s not in the best interest of
consumers when governments price-fix the price of labor. Technically, price-fixing
is when participants in a market buy or sell a product, service, or commodity only
at a fixed price.
Besides causing higher prices, price-fixing
a minimum wage raises employment barriers for unskilled workers since workers
trade productivity for wages. If what a worker must be paid does not return an
equal economic productivity, they cannot be employed.
The media bombards us with heart-wrenching
stories of abject poverty for people making the minimum wage. But people live by
the month, never by the hour.
There is no amount guaranteed other
than the hour worked. The workers are injured when businesses, reacting to
rising labor costs, trim the workforce hours or workers.
Consider if someone is making $7 an hour
for thirty hours a week. Their gross pay is $210 a week. If the minimum wage
rises to $9 an hour, since the business labor costs may be fixed, that business
may cut minimum wage employees to fifteen hours a week which is $135 a week.
The government requirement is an
hour, not a month. We live by the month. Of course, minimum wage earners may be
the first cut since they have the least job experience. Then their minimum wage
is zero.
Price fixing has been illegal in our
country since the Sherman Act in 1890. When has any government price-fixing worked?
Soviet Union price-fixing caused low prices for groceries in empty grocery
stores.
In World War Two our government
froze wages so for businesses to hire someone from a competitor they had to
offer something else of value. It was health insurance which was not used much before
then.
Over the years, the health insurance
industry grew into one sixth of our economy as our resources were given to
Insurance and pharmaceutical companies along with lots of lawyers, lobbyists
and politicians. Smaller amounts went to doctors and hospitals. Finally, we
people became just the giving units to the high and powerful.
Price-fixing by our government on
domestically produced oil brought us the gas shortages and higher prices for
energy in the 1970s along with the increase of economic power for the Middle East
Oil Cartels.
President Reagan stopped the
price-fixing and oil prices went down. The more governments price-fix, the
worse it becomes for their citizens. Economist Milton Friedman wrote, “The most
important single central fact about a free market is that no exchange takes
place unless both parties benefit.”
My biggest concern in these Minimum
Wage increases is that it precludes some people, usually very low skill or no
skill workers from even getting a job since they must return in productivity
what they are paid or the business will fail at some point.
Often work hours are cut for the
already employed low-skill workers which reduces their gross amount of monthly money.
We used to work a standard forty hours a week. Lately it’s thirty-two or twenty-eight
hours.
The living wage is touted but what should
be the amount? If it’s tied to $15 an hour and full employment of forty hours a
week, that’s $31,200 a year. The government requiring a living wage means low-skill
workers will never be employed since they cannot return that much monetary value
to their employers.
Now, if the government doesn’t like
what I, as an employer, pays, they are free to add any amount they want to the
paycheck of my employee. But I have three factors always: markets including
prices for my goods, labor costs to produce those goods and the return on
investment that keeps me in business.
If you take the cost of labor over
the possible return from the sale of my goods, I must either trim the
work-force or close the business. That’s Economics 101.
As President Ronald Reagan said at
his first inauguration, “In this present crisis, government is not the solution
to our problem; government is the problem.” Amen to that.
Posts
