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IPFS News Link • Employee and Employer Relations

Minimum Wage, Maximum Stupidity

• Peter Schiff
In a free market, demand is always a function of price: the higher the price, the lower the demand. What may surprise most politicians is that these rules apply equally to both prices and wages. When employers evaluate their labor and capital needs, cost is a primary factor. When the cost of hiring low-skilled workers moves higher, jobs are lost. Despite this, minimum wage hikes, like the one set to take effect later this month, are always seen as an act of governmental benevolence. Nothing could be further from the truth.

When confronted with a clogged drain, most of us will call several plumbers and hire the one who quotes us the lowest price. If all the quotes are too high, most of us will grab some Drano and a wrench, and have at it. Labor markets work the same way. Before bringing on another worker, an employer must be convinced that the added productivity will exceed the added cost (this includes not just wages, but all payroll taxes and other benefits.)

2 Comments in Response to

Comment by Eric Coulter
Entered on:

When minimum wage was $4.25/hour, I was making $5/hr.  ($.75 above min. wage)When it was increased to $5.15/hr, I went to minimum wage.  What about the people who are making above minimum wage now, will their pay increase as well?  Will their employer also keep providing benefits?  The employer will pass along the added cost to their consumer.  Everytime minimum wage increases, I just move closer to making minimum wage. 

Comment by Sharon Jarvis
Entered on:

Only an economist would make this assertion without regard for reality.  If an American worker cannot earn enough to pay bills and buy stuff (the foundation of our entire economy is consumption), then we will have no economy.  Nor can an American worker compete with a Chinese coolie who earns $3 a day no matter how much you lower our wages.  The only solution is to make sure we can earn enough to keep the wheels turning.  If we don't, because businesses think they can get that Chiese coolie to somehow buy their stuff instead of us, then we're all going down the tubes together.  And that is exactly what is happening now.