Minimum Wage Laws
Last week in Macroeconomics, we were covering minimum wage laws and are instructor claimed that it wasn't certain whether they hurt the economy/poor people or not. He said that on one side, there is the argument that the articifial increase in cost decreases incentive to hire people. On the other side, he said others argue that the increase wages stimulate economic growth to maintain a similar level of jobs or that due to decreased turnover, it is actually better for businesses in the long run. I reject those arguments for 3 reasons:
1 - As I pointed out earlier, government's proper role is not simply doing what economists or economics seems to indicate would be best for the economy. The governments role is to protect the rights of it's citizens, maintaining their freedom and protecting them from the assaults of others upon that freedom. Thus, the fact that "society" might be slightly better off if Bob gave Jack a raise, that is not sufficient warrent to force Bob to give Jack a raise. Bob and Jack have entered into a free agreement whereby Jack works for Bob for an agreed upon price.
2 - As our instructor pointed out, part of the assumption behind the pro-min. wage argument is that businesses only consider the short term and not the long term, while government considers the long term. How, by virtue of being a beaurocrat, one mysteriously loses self-interest and short-term tunnel vision and becomes a selfless civil servant dedicated to the best long term interest of society, nay, the WORLD as a whole, I doubt I shall ever know. Indeed, the facts seem to contradict this. Consider the recent Oil for Food Scandal, the New Orleans Debacle, and Social Security. In all cases, beaurocrats either acted on self-interest or lacked long term vision. People are people whether they work in the private sector or the public sector, and as such business will have at least as much interest in their long term success as some random beaurocrat who has no self-interest in the company whatsoever. In fact, they have every incentive to care MORE. ;-)
3 - Regarding the final reason presented, that the additional wages somehow stimulate the demand for minimum wage jobs, I see no reason to suspect this is the case, primarily because legislating a higher wage does not increase the capital available for labor investments. The capital remains the same, but is simply more concentrated into the hands of fewer laborers, which would seem to indicate that the same money that was going into the hands of these laborers is going to them and they have the same amount to spend. The only difference is that there are now fewer laborers receiving a higher wage. Those few may be better off, but those who have a harder time finding jobs are worse off.
1 - As I pointed out earlier, government's proper role is not simply doing what economists or economics seems to indicate would be best for the economy. The governments role is to protect the rights of it's citizens, maintaining their freedom and protecting them from the assaults of others upon that freedom. Thus, the fact that "society" might be slightly better off if Bob gave Jack a raise, that is not sufficient warrent to force Bob to give Jack a raise. Bob and Jack have entered into a free agreement whereby Jack works for Bob for an agreed upon price.
2 - As our instructor pointed out, part of the assumption behind the pro-min. wage argument is that businesses only consider the short term and not the long term, while government considers the long term. How, by virtue of being a beaurocrat, one mysteriously loses self-interest and short-term tunnel vision and becomes a selfless civil servant dedicated to the best long term interest of society, nay, the WORLD as a whole, I doubt I shall ever know. Indeed, the facts seem to contradict this. Consider the recent Oil for Food Scandal, the New Orleans Debacle, and Social Security. In all cases, beaurocrats either acted on self-interest or lacked long term vision. People are people whether they work in the private sector or the public sector, and as such business will have at least as much interest in their long term success as some random beaurocrat who has no self-interest in the company whatsoever. In fact, they have every incentive to care MORE. ;-)
3 - Regarding the final reason presented, that the additional wages somehow stimulate the demand for minimum wage jobs, I see no reason to suspect this is the case, primarily because legislating a higher wage does not increase the capital available for labor investments. The capital remains the same, but is simply more concentrated into the hands of fewer laborers, which would seem to indicate that the same money that was going into the hands of these laborers is going to them and they have the same amount to spend. The only difference is that there are now fewer laborers receiving a higher wage. Those few may be better off, but those who have a harder time finding jobs are worse off.