Friday, June 15, 2007

Abolish The Minimum Wage

'Everyone should be guaranteed the right to be paid a decent wage for an honest day's work.'

'Advocates of abolishing the minimum wage are stooges for Big Corp Inc.'

'If there is no minimum wage, greedy employers will be able to exploit desperate workers.'

These three arguments are widely held beliefs by the electorate. Opinion polls show overwelming support in favour of minimum wages and their reasoning sounds so fair and just.

They aren't and the public is wrong.

Here's why.

The minimum wage increases unemployment amongst the poorest section of society. Forbidden to work in the official economy, people whose skill levels command fewer rewards turn instead to unrecorded, cash income. They forgo all pension benefits and the protection of laws governing overtime, sick pay or other working conditions. Worse, they become dependent on dignity-destroying welfare for survival.

A far better solution is to abolish taxes for the lowest paid.

Rafe Champion at Catallaxy points to a paper published by the National Recovery Administration under President Roosevelt (no right wing think-tank, they) highlighting the damage done to black Americans during the 1940s following the introduction in 1933 by FDR of the minimum wage.

The report estimates that over 500,000 black Americans lost their jobs, all from the poorest section of society.

First, two facts.

1. Market wages are roughly equal to discounted marginal labor productivity.

2. Productivity varies from one worker to the next.

Hence, when minimum wages rise, employers are forced to fire their lowest-productivity workers.

An exhaustive study of the effects of minimum wages by David Neumark and William Wascher, published in 2004 by the Industrial and Labor Relations Review, calculated consistent employment losses among 19 to 24-year-olds in 17 industrialized countries. Many studies peg the losses at between 1-3% for every 10% increase in the minimum wage.

Leading minimum wage apologist, law professor, Ellen Dannin, urges her supporters to

"stand your ground, even if you have never taken an economics course"

This absurd position was debunked years ago by Murray Rothbard,

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

Logic and reason are on the side of those who propose abolition of the minimum wage. Emotion and well-meaning compassion are against us. Tough opponents for sure, but for the sake of the poorest members of society, essential to beat.