Showing posts with label Minimum Wage. Show all posts
Showing posts with label Minimum Wage. Show all posts
Saturday, December 17, 2011
Monday, August 22, 2011
Saturday, August 14, 2010
Labor Economics #3 - The Minimum Wage
Labor Economics #3 - The Minimum Wage
by Alex Merced
One of the most sancrosanct bastions of Labor laws is the minimum wage, and if you want to go beyond this article in learning about it listen to Roger Garrisons lecture on topic from Mises U 2010. Essentially what I want to demostrate through a brief example is...
1. The Minimum Wage actually transfers wealth from the those at the bottom, to the people marginally above them, so it transfers wealth upwards instead of downwards like it intended.
2. The Minimum Wage Creates Unemployment
So let's imagine a world with 300 people in Labor force working at the current wages.
100 People working at $8/hr ($800 spent)
100 People working at $7/hr ($700 spent)
100 People working at $6/hr ($600 spent)
of course, the lower paid workers are the lower skilled and lower educated workers who may be payed more in the future if they learn skills and information on the job. What happens right now is that the economy can allocate work for the entire labor force at these wages, but what happens if we establish a minimum wage of $7/hr. Now our workforce looks like so...
100 People working at $8/hr
185 People working at $7/hr
15 people unemployed
The minimum wage law did not make these employers magically have more resources, so the $600/hr that was was going to the 100 laborers at $6/hr in the first scenario can now only afford to continue to employ 85 out of the 100 laborers leaving 15 unemployed since there is no more resources to employ them. Essentially the lower you are on the wage ladder the more negatively affected you will be by an increase in the minimum wage, it's those in between the bottom wage and the new minimum wage who benefit at the cost of those at the bottom.
(NOTE: One may ask why wouldn't the labor force reduce the wages of the $8/hr workers to keep the $6/hr workers? The answer is simple, the $8/hr workers add more value which is why they are payed a higher wage in the first place so if you had to choose between possibly causing a valued worker to quit from a pay cut or laying off workers who add the least value you'd choose the latter.)
So this example shows how it causes unemployment, and how increases the wealth of a few at the cost of not those at the top but those at the bottom. So what happens to these unemployed people, they still have to find work so they may move to another location with a lower or no minimum wage in which they can enter the labor force at their skill/education level. Although, if these uneducated/unskilled people migrate from all the places with a minimum wage to this one bastion of freedom with no minimum wage it causes a huge concentration of uneducated/unskilled people in one place.
This explains why the places that are the most free sometimes seem to have some large concentration of uneducated people (a very gross and misplaced charachterization of many souther red states), not because freedom is backwards but because these free places are the only places that will welcome with open arms those from other locations who've been kicked out by wage laws, forbidden to enter the labor market and develop the skills to later make higher wages.
"Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!"
- Statue of Liberty
by Alex Merced
One of the most sancrosanct bastions of Labor laws is the minimum wage, and if you want to go beyond this article in learning about it listen to Roger Garrisons lecture on topic from Mises U 2010. Essentially what I want to demostrate through a brief example is...
1. The Minimum Wage actually transfers wealth from the those at the bottom, to the people marginally above them, so it transfers wealth upwards instead of downwards like it intended.
2. The Minimum Wage Creates Unemployment
So let's imagine a world with 300 people in Labor force working at the current wages.
100 People working at $8/hr ($800 spent)
100 People working at $7/hr ($700 spent)
100 People working at $6/hr ($600 spent)
of course, the lower paid workers are the lower skilled and lower educated workers who may be payed more in the future if they learn skills and information on the job. What happens right now is that the economy can allocate work for the entire labor force at these wages, but what happens if we establish a minimum wage of $7/hr. Now our workforce looks like so...
100 People working at $8/hr
185 People working at $7/hr
15 people unemployed
The minimum wage law did not make these employers magically have more resources, so the $600/hr that was was going to the 100 laborers at $6/hr in the first scenario can now only afford to continue to employ 85 out of the 100 laborers leaving 15 unemployed since there is no more resources to employ them. Essentially the lower you are on the wage ladder the more negatively affected you will be by an increase in the minimum wage, it's those in between the bottom wage and the new minimum wage who benefit at the cost of those at the bottom.
(NOTE: One may ask why wouldn't the labor force reduce the wages of the $8/hr workers to keep the $6/hr workers? The answer is simple, the $8/hr workers add more value which is why they are payed a higher wage in the first place so if you had to choose between possibly causing a valued worker to quit from a pay cut or laying off workers who add the least value you'd choose the latter.)
So this example shows how it causes unemployment, and how increases the wealth of a few at the cost of not those at the top but those at the bottom. So what happens to these unemployed people, they still have to find work so they may move to another location with a lower or no minimum wage in which they can enter the labor force at their skill/education level. Although, if these uneducated/unskilled people migrate from all the places with a minimum wage to this one bastion of freedom with no minimum wage it causes a huge concentration of uneducated/unskilled people in one place.
This explains why the places that are the most free sometimes seem to have some large concentration of uneducated people (a very gross and misplaced charachterization of many souther red states), not because freedom is backwards but because these free places are the only places that will welcome with open arms those from other locations who've been kicked out by wage laws, forbidden to enter the labor market and develop the skills to later make higher wages.
"Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!"
- Statue of Liberty
Monday, April 5, 2010
New York Shoots itself in the Foot
This is a Response to this New York Times Article:
If you havn't seen my video on the Fallacy of Progressive Logic then I recommend you watch it to get a better appreciation for the frustration I have over the actions against "Illegal" internships which has several problematic assumptions...
1) An Intern can't REPLACE a job - Now while I've intervied, hired, and overseen academic marketing interships for Shane&Shawn and Greico Financial Training, I can safely say an intern can't replace specialized and skill labor. A business doesn't get applicants with the same experience level and skill that someone who can demand a wage brings, and the business and it's production would suffer if it were to attempt such a replacement. This drop in productivity and returns is punishment enough for such a poor business decision.
I doubt many would make this decision unless the market is already putting downward pressure on production costs in which case that jobs wouldn't exist much longer anyways. The sooner job losses occur in an economic adjustment, the sooner the capital tied up in that unproductive job can put to more productive means creating jobs somewhere else. Why would i say the job is unproductive? If the job were productive it would produce more value than it costs meaning there would be no reason to cut it. The interships I've overseen were productive exercises that helped developed skill and experience for those who participated in them who went to greater things.
2) This hurts the Adjusting Labor Force - You have two categories of people who are going through a pain ful adjustment...
College Graduates - This new crop of laborers are overwhelmed by the lack of experience and skills in an overcrowded labor market, meaning they must develop the skills and experience to demand a wage. If the amount of internships is violently reduced then less graduates can enter the labor market and climb up the wage ladder, since the surplus of skilled labor from layoffs pushes the price of unskilled/unexperience labor below the minimum wage, meaning the only other way to enter is through interships since no middle ground is allowed.
Layoffs from Shrinking Industries - This skilled and experienced labor faces a different problem, a lack of jobs that need their current skill set meaning they must develop a new one. The cost and time of education much of the time can be cost prohibitive but an unpaid internship can often be the cheapest method to develop new experience and skills to enter growing markets after overinvesting in a shriking one.
Just the threat of sanctions for "illegal internships" would severly discourage the supply of internships for these groups to have a speedier transition in this adjustment period. Again, while these groups adjust to a changing demand for labor the capital saved by businesses in certain tasks helps spur investment in growing areas meaning for new jobs to put these new skills and experience to use in.
3) Everyone is volunteering - If unpaid interns are putting long hours and handling what may be handeled by someone at some wage, then the effective market price for the labor is... 0. In that case to force an employer to pay more would be price fixing above the market price which will cause a surplus in labor (aka unemployment). Also to prevent voluntary labor at any price is just a violation of someones liberty.
If you havn't seen my video on the Fallacy of Progressive Logic then I recommend you watch it to get a better appreciation for the frustration I have over the actions against "Illegal" internships which has several problematic assumptions...
1) An Intern can't REPLACE a job - Now while I've intervied, hired, and overseen academic marketing interships for Shane&Shawn and Greico Financial Training, I can safely say an intern can't replace specialized and skill labor. A business doesn't get applicants with the same experience level and skill that someone who can demand a wage brings, and the business and it's production would suffer if it were to attempt such a replacement. This drop in productivity and returns is punishment enough for such a poor business decision.
I doubt many would make this decision unless the market is already putting downward pressure on production costs in which case that jobs wouldn't exist much longer anyways. The sooner job losses occur in an economic adjustment, the sooner the capital tied up in that unproductive job can put to more productive means creating jobs somewhere else. Why would i say the job is unproductive? If the job were productive it would produce more value than it costs meaning there would be no reason to cut it. The interships I've overseen were productive exercises that helped developed skill and experience for those who participated in them who went to greater things.
2) This hurts the Adjusting Labor Force - You have two categories of people who are going through a pain ful adjustment...
College Graduates - This new crop of laborers are overwhelmed by the lack of experience and skills in an overcrowded labor market, meaning they must develop the skills and experience to demand a wage. If the amount of internships is violently reduced then less graduates can enter the labor market and climb up the wage ladder, since the surplus of skilled labor from layoffs pushes the price of unskilled/unexperience labor below the minimum wage, meaning the only other way to enter is through interships since no middle ground is allowed.
Layoffs from Shrinking Industries - This skilled and experienced labor faces a different problem, a lack of jobs that need their current skill set meaning they must develop a new one. The cost and time of education much of the time can be cost prohibitive but an unpaid internship can often be the cheapest method to develop new experience and skills to enter growing markets after overinvesting in a shriking one.
Just the threat of sanctions for "illegal internships" would severly discourage the supply of internships for these groups to have a speedier transition in this adjustment period. Again, while these groups adjust to a changing demand for labor the capital saved by businesses in certain tasks helps spur investment in growing areas meaning for new jobs to put these new skills and experience to use in.
3) Everyone is volunteering - If unpaid interns are putting long hours and handling what may be handeled by someone at some wage, then the effective market price for the labor is... 0. In that case to force an employer to pay more would be price fixing above the market price which will cause a surplus in labor (aka unemployment). Also to prevent voluntary labor at any price is just a violation of someones liberty.
Subscribe to:
Posts (Atom)