Tag: minimum wage bad

Want to Help the Poor? Abolish the Minimum Wage

By Indri Schaelicke | United States

When it comes to the minimum wage, few people truly understand the complexity of the mechanism. Many believe that raising it is a quick fix to poverty. However, minimum wage hikes only increase the cost of living, hurting the economy for both the rich and the poor.

In 2014, Seattle signed a law that would increase the minimum wage there each year. By 2021, the wage will reach $15 per hour. While many support this law, libertarians are scratching their heads. Wages are an input of production, meaning that when a business produces a good or provides a service, part of its success is due to the employees and their necessary wages. When the cost of an input of production increases, the final price of the good or service must also increase. If all wages in a city increase, then all prices of goods and services will increase. Things will be no more affordable than they were before the minimum wage hike.

Minimum wage increases also lead to significant job losses. As mentioned before, when wages increase, the final price of a good or service must also. In order to combat having to charge high prices for their products, businesses can fire employees and move to automated systems that make use of the latest technology and do not require much human input. McDonald’s Restaurants recently started using automated kiosks in some stores to cut down on the amount of staff. This investment insulates McDonald’s from the fluctuations of the labor market and from the effects of minimum wage increases.

Kiosks like these have appeared in McDonald’s across the US as the fast food chain seeks to insulate itself from labor market fluctuations and increases in the minimum wage. Image Source

The minimum wage hurts those whose skills are worth less than a mandated minimum. As they are not worth, say, $15 per hour, employers cannot hire them at all. Someone whose typing skills only earn them $5 per hour is unable to find work at all. But, if the minimum wage ends, he or she will be able to find an employer willing to hire them. While $5 per hour is nowhere near the wage required to live a comfortable life, it is a stepping stone to higher paying jobs in the future. The person given in the previous example can work at improving their typing skills until they find employers willing to pay incrementally more. In this way, people are able to climb the socio-economic hierarchy.

Beyond just the minimum wage’s harm to the economy, it is also immoral, because it limits what terms two consenting adults can voluntarily negotiate a contract for. The state should not have any say in how a person values their labor. These terms are between employer and employee.

Abolishing the minimum wage will open up job possibilities for those that need them most. It is one step closer to a world where the state does not control every aspect of life. Individual sovereignty begins with being able to decide one’s worth.

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Featured Image Source.


The $15 Minimum Wage is a Self-Defeating Goal

by Andrew Lepore | United States

In the last couple of years, those with little to no understanding of business and economics have been rallying in support to double the federal minimum wage. Organizations like Fight For 15 and raise up have been organizing to demand a coercively enforced and artificially set $15 an hour minimum wage.

As well-intentioned as these people might be, their ideas are misled. Their goal is to help the low skilled workers and immigrants, who they believe are exploited, to achieve a “living wage”. Yet those demographics, along with business owners, will be among the most hurt by such a policy. As evidence shows, and anybody with knowledge of the law of Utility Maximization could predict: an artificial doubling in the price of low skilled labor will make the investment of hiring unprofitable for most employers. This would lead to the incentive for businesses to replace labor with automation.

Wages simply represent how much an individual’s labor is worth, which is negotiated and agreed upon by the employer and employee. Any employer will hire any individual if they value the labor the potential worker will supply more than the amount of money the worker is demanding for a wage. If the government sets a minimum wage at a price higher than employer values the labor, it becomes incentivized for the employer to simply invest in automation to save money.

For example, imagine I own a business employing 40 low skilled workers at the current federal minimum wage of $7.25 an hour. My expenditures and budget were precisely calculated to give me a small profit margin and keep my business afloat. Now imagine the federal minimum wage is jacked up to $15 an hour. With the state requiring a $15 an hour wage the only possible ways for me to balance my budget and keep my doors open are to either doubling my prices for everything, or lay off workers.

Due to the fact that I would receive immensely less business If I doubled prices, that itself could put me out of business. The last viable option would be to lay off workers, as I simply cannot afford the government’s artificially prices labor cost. The solution now for the business owner is to invest in automation replacing as many low skilled positions as possible; as the cost to employ workers at the minimum wage price significantly outweighs the cost to invest in automation.

Scenarios like this don’t just exist in theory or in my imagination. Many times in the past wage hikes have been followed by mass increases in job automation. Taking data from U.S population in 1980-2015, a meager 10% increase in the minimum wage results in a .33% increase in low skilled labor jobs replaced by automation. In manufacturing its as high as a .78% increase . The demographics most affected by these wage increases are immigrants, females, and African Americans.

Just so my stance is clear, i’m in favor of the full abolition of all wage standards. I believe that the value to labor is something which in all cases should be negotiated and agreed upon by the employer and the employee. Moral standards aside, the minimum wage only serves to hurt workers it is designed to help.

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