Monday, May 2, 2011

Murray Rothbard & B.C.'s Minimum Wage

VANCOUVER -- The minimum wage hike in B.C. went into effect Sunday, raising the amount by 75 cents to $8.75, but it will still be the lowest in the country. That is until it is raised again to $10.25 in May 2012.

Minimum wage laws. Seriously?

Last month, Premier Christy Clark ended an almost decade-long freeze to B.C.’s minimum wage...

Stupid socialism, it's like celebrating illiteracy.

Ian Tostenson, president and CEO of the B.C. Restaurant and Food Services Association, has said that the sharp increases have left many business owners concerned they will have to reduce staff.

Evil capitalists! Hiss! Boo!

Jim Sinclair, president of the B.C. Federation of Labour, has dismissed this argument. He argues that good wages help employers because people with money in their pockets spend it in small businesses.

Well Jim's argument rests on the fallacy that spending money is good for the economy. Keynesianism aside, even if Jim's premise was correct the argument is still invalid because mandatory wages aren't helpful for employers or employees.

Rothbard, take this guy to town:

In truth, there is only one way to regard a minimum wage law: it is compulsory unemployment, period. The law says: it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result.

Still don't believe him? Consider this,

If the minimum wage is, in short, raised from $3.35 to $4.55 an hour, the consequence is to disemploy, 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 disemployed and devastated by this prohibition will be precisely the "marginal" (lowest wage) workers, e.g. blacks and teenagers, the very workers whom the advocates of the minimum wage are claiming to foster and protect.

Basically what he's saying is that marginal workers are punished by minimum wage laws. Now what's a marginal worker? Well if you're unfamiliar with economics you might have just accused Rothbard of being a racist. So let me bring up this paradox.

If food is way more important than gold, than why is it that people (like Rothbard) value gold much more? Well first, value is entirely subjective. And second, individuals aren't choosing from all the gold in the world and all the food in the world. We're choosing "on the margin." For example: 3 ounces of gold over, let's say, $50 bucks worth of groceries.

Following this logic, employers hire employees on the margin. If hiring 30 employees at $5.00 an hour seems profitable (or valuable), then the employer begins the hiring process. If a politician comes along with a police force and demands a minimum $10 wage, then obviously it becomes unprofitable to hire 30 employees at this rate. But it's not a simple case of hiring 15 employees instead. Nobody could get hired if 15 employees aren't adequate for the planned work. Thanks to some law, the employer cannot afford the needed help and the "marginal workers" are left unemployed.

All minimum wage laws do is make unskilled workers unprofitable. A employer may value hiring 30 unskilled workers at $5.00 an hour, and 30 unemployed "marginals" may value getting $5.00 an hour for unskilled labour. Those refusing to work at those "slave wages" are free to refuse. No coercion is involved whatsoever.

It is not until Christy Clark and the illiterates at the B.C. Federation of Labour come along with ideas for "minimum wage" that problems arise. The State uses coercive means to achieve ends. In this case, the result is not only unnecessary aggression but also unemployment.

Jim Sinclair's argument was simple. Higher wages means more spending which means better economy. The reality is minimum wage creates unemployment causing poor unskilled and unemployed people to stay poor, unskilled and unemployed.

Tanstaafl, Canada.

No comments:

Post a Comment