Why Minimum Wage Laws Should Be killed
written by John Chow
I received this email yesterday from Jobacle.com asking me to take part in the minimum wage challenge. The challenge ask all bloggers to live on minimum wage for one week.
You will need to learn how to stretch a dollar because every other expense will go towards your budget. Think you can stay nourished and entertained while maintaining the quality of your life? Prove it. Take the challenge.
Unfortunately, Jobacle.com gave everyone too much of an out for the challenge to really work.
We don’t want to make this overly complicated. So if you decide to participate you can still live in your house and pay your mortgage. You can still get behind the wheel of your SUV. And yes, if there’s a medical emergency, you can still take care of it. Even keep your high-speed Internet connection.
If I were to remove the cost of housing, internet and transportation, then the only thing I really need to pay for is food. While I wouldn’t be able to eat very well on minimum wage, I’m pretty sure I wouldn’t have to live on mac and cheese either.
The challenge is to highlight the new Fair Minimum Wage Act which came into effect today in the U.S. The new minimum wage is $5.85 per hour and will increase to $6.55 per hour next year and $7.25 the year after that. Jobacle.com feels the new wage level is a joke and disrespectful to employees.
I believe the minimum wage laws should be killed off and wages should be subjected to the laws of supply and demand. I’m sure my position isn’t very popular but I think politicians will eventually have to recognize that minimum wage laws just doesn’t do what it was intended to do.
Minimum Wage Law Hurts The People It Was Designed To Protect
Jobs are subject to the laws of supply and demand just like any other commodity, with or without a minimum wage law. If something is price low, you sell more. When you price it high, you sell less. When wages gets too high, companies hire less. The means more unemployment. Canada’s (British Columbia) minimum wage is $8.00 an hour (and our dollar is almost on par with the U.S. now). Canada has higher unemployment than the U.S. I wonder why?
The whole point of a minimum wage law is that the market wage for some workers is deemed to be too low. If it is fixed by law above the market level, it must be at a point where the supply exceeds the demand. Economists have a technical term for that gap. It’s called unemployment. Advocates of minimum wages either reject that elementary logic or don’t care.
A minimum wage law denies workers the freedom and right to negotiate their own wage contracts. It forces employers to lay off workers whose work is no longer worth the minimum wage and reconsider future hiring plans.
Minimum Wage Laws Are Unfair To Workers
What is a fair wage? My answer would be whatever the employee and the employer negotiates. Certainly it is not fair to be forced by the government to be unemployed at $5.85 per hour. Minimum wage laws forces workers to remain unemployed rather than accept work at a lower wage. It forces the unemployed to accept the indignity of welfare rather than the indignity of a job. It kills job opportunities for youth, women, visible minorities, unskilled workers and denies young workers the chance of getting on-the-job-training and work experience.
It’s Self Defeating Model
Raising the minimum wage may make it look like it’s giving more money to workers but it’s really a self defeating model. Assuming the business doesn’t lay off any workers, it’s operating cost just went up. What does a business do when their operating expenses increase? They raise prices to make up the difference. That adds to inflation. Suddenly, everything cost more and that wage increase buys about the same amount of stuff it did before.
We Are In A Global Economy
An increase in the minimum wage is always followed by an increase in off shoring jobs. Does the US have any tech support call centers left? When you operate in a global economy, having minimum wage laws just means businesses can go somewhere else to find labor. It’s not just big businesses that are off shoring jobs to districts with no minimum wage laws. You’ll be amazed at how many mom and pop operations are sending work offshore.
You Are Where You Want To Be
I grew up in the poorest neighborhood in Canada. My parents came to Canada with nothing but my dad always told me that in this country, I have no limits on what I can achieve - that if I didn’t like my situation, I have the power to change it. I am where I am today because I was stupid enough to believe that.
We live in a capitalist country, not a communist one. It’s not the government’s job to take care of you or your family but many people seem to believe that. You don’t like living on minimum wage? You can’t live on what you’re making right now? Then do something about it! I would argue that everyone of us is where we want to be right now. Because if we’re not where we want to be, we would do something about it. I don’t know about you, but I rather be in control of my own destiny than let the government be in control of it.
For more information on the true effects of minimum wage laws, read the Fraser Institute report The Economics of Minimum Wage Laws.
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Minimum wage laws are useless… but then again in my province no one uses them except maybe 15 year olds in retail…
I still hate min. wage laws because in economics, it just doesn’t make sense…
@ Assuming the business doesn’t lay off any workers, it’s operating cost just went up
So true. Layoffs the biggest problem. That’s why good help is hard to find. Workers will quit on you at a moments notice. But hey John Chow I wrote a Thank you Letter for you. Keep up the good work.
http://www.cashforcomments.com/thank-you-john-chow/
minimum wage has prevented a lot of people being exploited in the uk, so i don’t see it as a bad thing
What is this exploited stuff? If people are willing to work for less, if they are ok with working for that much, how is it exploiting? How is the government saying you must pay at least $X automatically making it not exploitation? They are not being forced to work there. The government bumping up the pay rate, an artificial increase, does, as John says, nothing. Everything just costs more afterwards, which cancels out the artificial increase. Nobody getting the pay increase produces any more, works any harder, or does anything that would be worth an actual pay raise. “Pay me more for doing the same.” Great incentive to get ahead, right?
Minimum wage was not designed to be a living wage.
There were days back in Britain where the working class created a massive under-treated group and were being exploited under the laisez-faire economics. At that point the gap of wealth and poor skyrocketed, and the workers lived in bad conditions.
That’s when unions and what not popped up, to fight for their own wages. Personally I consider that just as much as part of the “Supply and Demand” market - it’s a form of negotiation through collective means.
Does exploitation still happen? Depends on what you call exploitation, but I don’t think so - at least not in Canada/US.
As much as I agree with the notion that the minimum wage gets in the way, when somebody tries to deny the fact that it helped out in Britain, they are in need of history education.
What also should be noted is all the violence and lives lost to achieve decent wages and standards to create a middle class. We’re headed back towards that huge divide in the developed world. Free markets are not as beneficial as many make them out to be. What is the natural state of the free market when it comes to government? War! That’s why we prefer monopoly and no market competition when it comes to government.
Jeff I have been arguing that to my pure liberal buddies - unions form part of a supply and demand free market. They don’t like this.
I’m with your words.
I’m sorry, but you don’t know what the hell you are talking about. You depend on government to set the environmental conditions of any market. That includes providing business a stable market and legal framework to operate. It also includes protecting workers from exploitation. Protecting the population from poison in food that they have no way of discovering on their own. Many of these safety mechanisms are no longer functioning correctly in the the developed world for the sake of growing global GDP growth, not local GDP growth. Multinational corporations run the world right now and they are interested in the whole pie. That means individual interests are sidelined. It is also the original definition of Fascism.
I know you have been convinced of your ideas with incomplete logic and economic sound bites, but you need to widen your frame and make a further in-depth study of the issue without endorsing dangerous ideas. I can’t address all the points here because it would take far too long so I’ll just reiterate.
You don’t know what the hell you are talking about. I’m a capitalist by the way, but not a fascist. Educate yourselves people.
By the way, tech support jobs were never minimum wage jobs in the U.S. Working in McDonald’d is though. The McDonald’s job just can’t be exported… yet. So your example holds no water.
I’ll spare you on technical points since you’re not an economist except for one. Raising prices to cover employee costs does not result in inflation it results in higher prices. Inflation is determined by growth in the money supply. Yes, it’s a technical term and often lost on the layman with disasterous implication s of understanding.
John, you are a successful businessman and done well to maximize the opportunities you’ve been given, but I know from reading this blog that you do not have a full appreciation of your own success on an economic level. Few businessmen do. Success in business has no bearing on understanding economics. Part of the developed worlds problems is that we have been relying on businessmen for economic advice. That’s why we live in a society where business holds more and more monetary and political power. Individuals have less and less. Do you want to live in a highly stratified society or a flat one? Stratication of oppotunity. It’s the difference between living in Mexico and living in Sweden. Mexico has now produced the the world’s richest man, but I’d wager the average Swede has a much better lot than the average Mexican.
Therein lie the values of most Canadians. While we’re not as socialist as the Swedes, they have a model that many Canadians feel is very impressive. We believe in a social contract.
Right on, John. Minimum wage increases are just a means for politicians to earn points with the misinformed and poorly educated.
No one but but maybe a few part-time, entry level fast-food workers and similar positions earn the minimum wage - and that’s typically only for the first month or two to make sure the employee is worth keeping around, and then they either get fired or get a bump in pay.
If you’re trying to support yourself let alone a family on a minimum-wage income, then I’m sorry, but that is your fault. Poor attitude or poor discipline are the only excuses for someone stuck at minimum wage for any length of time.
With the current U.S. unemployment rate, pretty much anyone here who wants to work full-time and is marginally skilled can find work, and no one gets paid minimum wage for a full-time job.
The net effect of a minimum wage hike like the one we’re seeing is probably next to nothing. The poor will still be poor and the companies that hire minimum-wage labor will just staff fewer employees. What you’ll basically see is a bunch of teenagers running around having a harder time finding a part-time job.
Basically, anything government touches, it screws up. Let the market decide the price of labor.
Anyone who’s taken an economics class and knows what Deadweight Loss is should be able to economically derail the whole thing.
i don’t really know what you mean here
I agree with that. I worked at the swimming baths when I was 16 and only got £2.16 per hour. When you consider getting there cost me £2 and then I had tax to come off it wasn’t really worth my while.
The USA is the richest country in the world but it is also the country with the biggest gap between poorest and richest and I think the minimum wage is a small step towards rectifying that, at least a little.
your argument is a bit skewed. the larger the bell curve the larger the gap between rich and poor. but a larger bell curve means more middle class which is the power of any economy.
in some impovrished nation the gap is really just as large but because their is no middle class the curve is smaller thus the “gap” you speak of is smaller.
the other problem i see with your argument is that you ignore the role “the tax” plays. taxes from the top down is what caused it to cost you 2 and only make 2.16. the taxes on petrol are so high that it increases transportation, and the taxes on businesses both small and large is so exorbitant that wages stagnate toward the lower end.
government getting out of the way of people, has worked in every country throughout history, every time it is tried.
running business is not the role of government. if governmenrs new so much about running business then they all wouldn’t be running defecits.
Agree with the deadweight loss statement. Market externalisites being the key point on deadweight loss in our current climate. At the root level it comes down to ethics of where you want wealth and power concentrated in your society. Amongst the few or the many. I’ll take the many and along with that a minimum wage akin to Scandinavian levels, which produce a flat society with high economic growth and relatively low crime and equal opportunity.
The thing is, John, without minimum wage laws, employers could simply pay some kids $2 an hour (and their actions wouldn’t be illegal).
Oh… right, and what about those who don’t have an education and properly-trained skills to “do something about it”? You sound quite Conservative, John
Hi Eastwood
They could take an education like the rest of us. We didn’t receive our education from heavens above
No you didn’t, you were given the opportunity and financial support to do it. You were privileged to receive that education. I worked my ass off to get a really good degree… but it was a privilege to have that opportunity in the first place.
That’s a load of Horse s***. (at least in the us) As long as you’re at least of average intelligence, and breathing, you can go to college.
I have friends that are dirt poor (one parent on disability and one that farms and does side jobs, makes maybe 1-10k a year) and the state pays for practically all his schooling.
Not only that, but most satellite campuses have far lower standards for accepting students. For example I have another friend who is below average intelligence, his G.P.A. was in the low 2 range, and he got in (albeit on probation).
In the U.S. the opportunity is there for everyone. Why do you think the B.A. degree is devalued now? It’s because almost everyone has the opportunity to get a degree.
I understand the point John is trying to make. It takes some desire to better yourself. These two people had that desire even though life didn’t set them up to succeed easily. There are many more people that I know for a fact could easily go to school but don’t, because they will settle for the bare minimum.
People who argue everything is in their own hands and that there is no need for society to protect its weaker members are invariably the ones who made it.
John does not understand that most people do not have the ability to achieve what he has, and that some people require a level of protection from being exploited.
To twist Johns words to an extreme, how about:
“Starving people in Africa are where they want to be right now. If they were not, they would do something about it”
Its about opportunity and ability, neither of which are distributed on an equal or fair basis…..
strong words and brutally true
I tend to lean more towards what Jez is saying. In my mind, in Canada at least there is a path for anyone to succeed, but if someone fails to find that path, I don’t feel that they should be taken advantage of.
I’m not speaking from any economic standpoint, I’m not that well versed in economic theory. This is a gut reaction.
While unemployment may be comparatively high to the US, the tradeoff is to cut and slash a great deal of wages from those who can least afford a pay cut.
From an employers standpoint, it’s great. If there’s a downturn, you just don’t pay people well. From the standpoint of someone who needs to put food on the table, it’s not that simple. I understand supply/demand curves but the reality of the human experience is that the risk/reward equation is rarely as simple as the models suggest.
Amen. I can’t help but think that anybody who says MW laws should be abolished hasn’t actually worked one and tried living off a MW living.
People need to read Nickel and Dimed by Barbara Ehrenreich, where the author goes and gets nothing but MW jobs and tries to see what it’s like to live off them. In the end, you realize it’s virtually impossible.
To say that most MW jobs would result in higher pay via the supply and demand theory is simply false. We already live in a fluid market, where the employer knows that as soon as a MW worker quits, he can hire a replacement that day. The turnover rate for MW jobs is so mind numbingly high that an employer can simply laugh at anybody who demands a higher pay than MW because there are 20 people next in line that will take the lower pay. Remember, these are jobs nobody wants in the first place.
And it’s nice to think that the people who take MW jobs would appreciate being able to negotiate their pay, but the truth of the matter is that most MW workers have hardly any education
If the argument is being made that MW laws are hurting businesses in that it costs them too much money, then what do you think will happen if we abolish the laws? Businesses will immediately lower the pay of their MW workers and then what?
Also, there’s a flip side to MW. If a person isn’t making enough to live off of and it comes down to buying food for a week versus a bus pass so they can get to work, what do you think they are going to do? MW tries to help out employers as well.
And the argument that the losers in all this is the consumer who ends up paying more is a moot point to me. No offense, but if somebody feels they are losing out because they have to pay an extra dollar for a pair of jeans or a an extra nickel for their morning Starbucks, then stop buying the lattes and designer pants. I’ll gladly pay an extra quarter here and there so that the guy behind the counter can afford to live. We’re not talking about paying extra so that he can upgrade his Mazda to a Ferrari, we’re talking about paying extra so that he doesn’t have to tell his kids that they’re having ramen noodles for a 90th night in a row.
Honestly, living off MW isn’t as easy as people make it sound.
If the argument is being made that MW laws are hurting businesses in that it costs them too much money, then what do you think will happen if we abolish the laws?
They would hire more workers at home instead of subbing the jobs out to China.
I agree with you that they would hire more workers at home instead of subbing jobs out to China, but since we know they are paying the Chinese workers only a fraction of what MW workers here in Canada and the US make, we don’t end up with a very appealing system. I think almost everybody who has had their job outsourced would agree that they wish they had their old job back, but not if it meant they were getting the same wages that the Chinese people are currently getting.
If we establish that living off $5.25/hr is almost impossible and abolishing MW laws means we are able to hire more people for $2/hr, then what is the upside? Instead of having a larg group of people struggling to make ends meet while earning MW, we now would have an even larger group of people not even coming close to making ends meet while they earn far below the old MW.
The average person making min wage is a teenage living at home with his parents. I never said you can live of a min wage. You can’t. However, most people making min wage don’t have to live off it.
That’s a fine argument in the US, given their social stance, but in Canada, the *average person* isn’t a good enough measure. That’s the fundamental issue.
I think that all of your arguments hold a lot of water in the US John, but the Canada I know leans much more towards on social agendas and safety nets than our neighbours.
Ah, then that is where we begin to diverge on opinions, John. If you look at most low-income families in the US, the reason they are in the low econimical class is because they are trying to live off MW while they work as hotel maids or cashiers or waitresses. (Remember, there’s a huge difference between working as a waitress at an Olive Garden type (family restaurant where tips are decent) versus a truck stop diner (where you’re lucky to come in at $6/hr after you factor in tips).
Like I said, check out the book I mentioned upthread where the author tries to live off MW jobs for I think it was three or four months. The numbers are absolutely astounding as to how many people actually live off MW. There are far more people doing it than there are high school kids just making some extra spending cash for the weekend.
Economic fact is that as soon as minimum wage laws are abolished, historically, wages rise. For the poor too.
When the government determines the value of the worker it removes initiative to negotiate for themselves or collectivise. By removing the responsibility from the employee and shifting it to obscure law, the employee is less empowered and simply accepts the crappy wage.
When minimum wage laws are removed, the LACK of a safety net is what spurs people into action and forces them to create a new bargaining position.
In Australia until recently there were three systems - Government set minimum wages for certain industries, union-negotiated awards for others, and employee-negotiated.
In ALL instances the employee negotiated salaries are the highest and the government set salaries are the lowest.
Its about opportunity and ability, neither of which are distributed on an equal or fair basis…..
no offense but that is a position of ignorance. you cant distribute ability that ultimately comes from God if you believe in one or simple genetics if you don’t.
Errm that was kind of my point to counter Johns argument that:
“everyone of us is where we want to be right now. Because if we’re not where we want to be, we would do something about it”
But as you point out we all have to work with what we’ve got, and for some people that simply isn’t enough….
It is true that opportunity and ability are not distributed on an equal and fair basis but does that mean it is the governments responsibility to help the underprivileged? I do believe that as a society we have an obligation to care for those who are in need, but we should take action ourselves and not rely on government. A lot more could be done for the good of humanity if people would just take action themselves and not try to lobby the government to take action. Why use the government as a middleman? It takes responsibility off our shoulders. If the government is taking care of the poor we don’t have to worry about it, right? That is a selfish excuse. The government will do it less efficiently than individuals can. Go make change yourself. If you think minimum wage is too low, go start a business and hire employees at what you think is a fair wage.
Well… You could look at Ireland which has had minimum wage for a long time now. In fact its at almost $12 an hour now.
So what does this mean? Well 80% of irelands population is now millionaires due to property prices.
But that doesn’t mean much. Heres some figures for you to compare.
Cinmea Ticket : $9
500ml Coke : $1.65
Big Mac : $2.80
Porsche 911 GT2 : $500,000 (thats the old model not the new one)
Local phone call : 0.02c/min
Internet/Broadband : (lowest i can find) $34/month
Then you have a loop hole, for example lets say your new at this job and because you have no qualifications you go on a training wage. Which means you get $2.50 an hour for a couple of weeks/months till your “Trained”.
Now lets say your a hard worker, you bust your balls to make a good living in an “unskilled job”. America was attractive because people can do that, the harder they work the more they are rewarded.
With minimum wage, its a guaranteed price lock. Employers will never give you a raise because the moral part of keeping them at minimum is covered by the legality of minimum which is increased yearly. That means people end up being lazy and don’t work because there is no reward for those who work hardest and no punishment for those who don’t work. Its the same result for everybody. This lowers the amount of entrapenures, success stories and quality of life for all.
Minimum wage is a terrible idea. It will lower the quality of life for the middle classes have and ultimately still make the richer richer. While keeping the poorest people poor, depressed and even more unmotivated that they were before. Further research will show that doing that too the poorest people who are the majority vote, are even less likely to vote. Which has other implications that I don’t have to mention.
It will do nothing for the poorest people. Snobbery will exist “oh your on minimum wage”, quality of life wont increase due to inflation on living expenses (Because the suppliers know that they can command a higher price) and employers know wherever you go you will get paid the same basement price.
Basically what I wanted to say, is that minimum wage will cause inflation so drastic over the next couple of years that you will wish you didn’t have a minimum wage. And when you eventually make it to middle class it really wont be that great, because of this inflation.
So what should you do instead of minimum wage, those evil bosses that pay $2.00 an hour? Move job to another company that pays more. Yes its a high risk, but without risk there is no gain.
I hate minimum wage, I want it to be gone with, but no we are trapped and we cannot get rid of it. House/rent prices are ridiculous, cost of living is over the top and we have minimum wage to blame.
Pierce
That’s some great information Pierce, thanks for sharing. It’s always nice to hear different perspectives. Personally I have a gut feeling that feels that minimum wages are necessary but reading a comment like yours help me to see the reality of the theories John’s talking about.
I agree that minimum wage makes sense. The argument “to protect workers from exploitation” is so attractive, thats why we have it!
But people forgot to say “Minimum wage wont make you rich, it wont give you a better quality of life, it wont protect you from massivly inflated prices”.
Which is why I think a lot of people voted for a minimum wage. Which were false hopes and dreams.
We are now in the situation, where it is expoitation all over again. (Considering the cost of living, after all thats why people wont work for $2 an hour) and its not only legal its moral. People dont have any standing point in a union to get their wages increased because the union says, well the company didnt promise you anything and your being paid the minimum wage, what do you want us to do about it?
And speaking of unions, wasn’t that the original reason for unions? Such that if you were with a union with everybody else in the company you could force that company to give you a better wage? The force of terror and threat that a union could inflict on a company was the main factor they paid you well? And if a company won’t recognise a union just go to another one that does!
If you have minimum wage laws, do you need unions? (Well, short answer yes, because they might make you work 90 hour weeks which would be unfair but legal..n but the point is, wernt they the ones that could decide your pay?)
Pierce
If you read what John stated and I also believe to be true. Wages like what you suggest wouldn’t last long at all, increase of employment means a natural rise in wages. The harder it is for a company to find an employee the higher it has to pay them to keep them.
The problem is it’s not hard at all to find a MW worker. Even if unemployment is below 1%, if you offer a person a job at MW salary and their only alternative is no job with no salary, they’re going to take the MW job in a heartbeat. And then the minute they find a higher paying job, they’ll jump ship, starting the process all over again.
Ever been to a fast food place or retail store staffed by teens? Half the time those kids don’t deserve $2/hour.
The thing is, if some of these kids were to get paid what they’re actually worth, they might actually develop a work ethic.
Now that’s irony. I’d say if they developed a work ethic, they might get paid what they are worth.
Not to be preachy, but I think one should earn everything in life including respect and compensation.
from my perspective, if the teens do the jobs that adults do, then they rightly deserve the same pay
Absolutely. If adults are doing their jobs as poorly as many teens do, they don’t deserve to be getting $2/hour either!
Employers hire employees to perform a job. You don’t deserve a minimum wage of any amount just because you showed up.