Monday, March 13, 2006


Minimum Wages

The minimum wage debate has come up again. I posted the other day about the newest agenda by John Edwards and his Center on Poverty, Work and Opportunity. Additionally, North Carolina's State Treasurer Richard Moore has been pushing his new blog (although it has been quiet as of late) on the same subject.

(BTW, some comments on Edwards)

So here are some goings on in the blogosphere on the same subject, which will be a hot topic come May when the Legislators get up and movin' again.

Opposite Day at MR.

Jane Galt.

Two Econlog posts: 1 and 2

In the news: Michigan and Michigan, the UK, Huntington Beach, and Arizona.

I guess the biggest issue is whether or not this agenda will improve the lots of the workers it purports to help. In the inequality arguments that I previously commented on, Russell Roberts warned about the unintended consequences of these forced equality measures. And although the empirical data is mixed on the subject, I am not sure how the "net effect" of limiting wage choices will improve these individuals’ lives.

Although individuals (on the net) do not become unemployed, new people (those folks whose marginal productivity falls below the price floor) will not be hired. Benefits (and other compensation options) tend to decline or at the very least stay the same, with mandated increases in wages. Additionally, this will make it more difficult for the poor, uneducated, and the young to begin working. The skill-less will have a harder time acquiring skills and experience in the workforce. There will likely be less initial upward mobility (or at least a lag). On a side note, the minimum wage is also good for unions, so that they can price out their competition.

The good thing about the minimum wage is that it will increase the relative wage of workers in the illegal or black markets. So, all of those illegal immigrants could very well see an increase in wages (since that is likely their only form of compensation).

Overall, I can not see how an increase in the minimum wage will have a positive net effect.

Small increases in the minimum wage are likely negligible, so they quite viable as a policy endeavor. However, since they are likely to have insignificant effects, why pursue them? Is there a reason to believe that the labor market “bottom feeders” need assistance to move upward in the labor market? I have yet to see any data, stating that those at the most bottom rung of the ladder can not get a step up (or that the ladder is broken – i.e. systematic institutions of forced poverty). If I saw that, then I might very well jump on board. So far, I am still waiting.

A very even and thoughtful post, Chris.

I agree with your conclusion and I hope, for the poor's sake, that John Edwards and others learn the errors of their arguments.
Thank you very much. I really appreciate it!
I wonder where a profit opportunity might be in this Michigan case? Will the under-skilled move away to nearby states where they can still get work? Will qualified people move to Michigan to get paid more for their labor? Will real estate in these areas go up or down?
I am not sure exactly Nathan. However, these things are generally pushed by either politicians or labor unions.

I am not sure how it would affect real estate, since there is usually not a net effect of job losses (not as directly linked to unemployment). I wouldn't think it would change a lot, unless people vote with their feet over this.

The under-skilled should generally be able to maintain their job, but it is unlikely that they will be advancing as quickly or at all.

It is possible that others would come to Michigan (those with higher skills), however there is little reason to believe that businesses will be generous with their wages to semi-skilled individuals. They might be able to pay them less than usual, since they have to increase the lower-rung individuals.

It is like my post today on portfolio theory, perhaps the employer can diversify his portfolio of wages by lowering the middle-skilled wages with the mandated increases in low-skilled wages. It's a thought.
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