IN A SOCIALIST society, saying that we should get rid of the minimum wage would probably get me stoned in public. Despite the noble intentions of the minimum wage, of attempting to help provide a wage which matches the costs of living, it has several detrimental effects which actually prevents people from getting onto, or progressing up, the job ladder. I will attempt to explain these detriments whilst dodging the stones that you are ready to throw.
The minimum wage distorts how supply and demand functions, specifically the pricing mechanisms used to determine the value of labour. Setting a minimum wage doesn’t take human actions into account in the determining of employment. Just as an example, if I was a waiter who charged £15.00 an hour for my services, whilst only generating £2 of value and profit from the services I provided, this would have two effects. Either the business owner would have to raise the costs of the products being sold to maximise the profit and loss (p/l) of the company, which transfers additional costs onto me working as a waiter if I wanted to eat at the restaurant, or I would be fired as I was adding liabilities of £13 an hour. Just ask yourself; as a consumer, would you rather have a £20 pound meal, or a £10 pound meal thanks to lower production costs. If raising the minimum wage was beneficial to the company as so many main stream leftie economists argue, why not set the minimum wage at £30 pounds, why not higher if raising them only provides benefits? I can’t wait to hear the leftie hypocrisy.
Most of the studies that these economists put out are only a confirmation of bias, and completely ignore human action. Raising the minimum wage only serves to price young, unskilled or lower skilled jobs from getting onto the job ladder because of the costs that they incur. It also has the effects of completely eliminating the possibility of these jobs ever getting created. If you are a young worker, job experience is far more valuable than the wage. Typically young workers have no skills to offer, and the experience gained whilst working at these low-wage jobs would help to increase the value of their human capital. Once you have the skills gained from the training, you will receive a pay rise to match your increased value. Please don’t take the term value out of context, because I am talking about skills and not foolish unpractical moral arguments. Many suggest that companies are exploitative, and will not offer decent wages, which is another economic fallacy. Pricing works between two people – the employer and labourer. The employer may offer an extremely low wage, and, if anyone accepts the job, it isn’t exploitative since they voluntarily accepted. People aren’t chained to cashier stations when they are hired. If anything, they should be glad that they got a job in this dead and highly competitive job market.
Since hiring people at this wage is extremely unlikely, since labourers also value the services they provide, the pricing mechanism will reach equilibrium as each party negotiates a fair wage, a phenomenon known as subjective value. Typically wages will actually rise, as many companies compete with each other to hire labour, and will bid higher to attract your services at the detriment of their competitors. Wages will also rise as your skill set expands, which is why you see higher pay grades for people with degrees, as an example. Wage costs and the compliance laws and fines associated with hiring are so expensive now that companies in the UK are finding it hard to stay profitable, and have relocated their businesses outside of the country. It’s not immoral, and it’s smart. Consider that labour unions actually campaign for higher minimum wages as a way to protect their skilled members from having to compete with younger unskilled workers who are actually cheaper to hire, then train up. Also consider that many companies hold a monopoly on labour because of minimum wages. Companies such as WalMart, wipe out mom-and-pop self-employed companies, as these don’t have the capacity to sustain ever larger minimum wage increases. Many youngsters in Spain, which has a 50% unemployment rate for ages 18-21, have been forced to start up their own companies to provide wages for themselves since they are too expensive for companies to hire; ironically they themselves aren’t hiring other younger workers because of this same reason.
If you want an example of how good the glorious free market and not having minimum wage is, Henry Ford of Ford Motor Company paid his workers $5 a week without any minimum wage legislation, this today is the equivalent of $120 a week. If you want to see an example of how the minimum wage has failed, look at the Tesco in Aberystwyth. The checkout desks are self-automated; if labour costs were lower those machines would be people working jobs at checkout. Now the value of wages, being the purchasing power of what you can buy is a whole different kettle of fish which concerns monetary policy and central banking which should be eliminated.