Friday, June 23, 2006

America losing the game of minimum wage.

A few months a go an American said this.

"It is time for Congress to take a look at the minimum wage and other legislation that can help working families."

"The U.S. minimum wage of $5.15 an hour has not been raised in nearly a decade and we believe it is out of date with the times,"

So who is this guy wanting a raising of the minimum wage. A democrat, a raving left wing union boss, some Daily Kos blogger no it was a guy called Lee Scott otherwise known to left wingers as CEO of Evil inc otherwise called Wal Mart. Now before you think this guy must have been visited by the ghosts of Christmas pass present and future and repented his evil neo-liberal ways. Here is the rest of his statement.

"We can see first-hand at Wal-Mart how many of our customers are struggling to get by. Our customers simply don't have the money to buy basic necessities between pay checks."

Note the word customers for later. Recently senate in America decided to not raise the minimum wage. The arguments against raising minimum wage tend to focus on various aspects in the Wall street Journal today the non-rise is defended as it would be against the kids.

With the economy booming, more young people are finding work, including summer jobs. But economists have long known that when minimum wages go up, the number of jobs for kids tends to go down.

The Disillusioned lefties argued that sometimes it is better for people.

Basically, the argument goes, the higher the minimum wage, the fewer low-wage workers can be hired by your average business, and the higher the unemployment (hurting the poorest in society). In addition, the higher the minimum wage, the higher the wage costs to the firm, the lower the profit margins, and the higher the prices for the consumer, hurting everyone

Now what both those arguments miss is precisely what Scott Lee saw. Consumers. In the first scenario. Where are the kids most likely to work. More then likely in the service industry convenient stores (I guess if you are writing about America it is best not to use proper words like supermarkets), Music shops, clothes shops etc etc. Now who would make up a large portion of the costumers of these shops. Who is going to buy 50 Cent’s latest exploits in cat strangling Album, who is going to buy Tommy Hilfiger designer gear. The very same people that this rise is supposed to effect kids and if this rise came, where is the extra money going to go. I’ll tell you more 50 cent more Tommy Hilfiger and more sales for the shop owners. Sure if a shop keeper individually rise wages they will suffer but a rise across the board will result in more sales for all. It is in essences Coordination Game Theory

This also goes for the lefties argument. While an increase in wages will decrease the profit margins it would also result in increase volumes. There is a reason that Toyata makes more money then Ferrari it is not profit margins it is volumes.

Tax cuts to the poor tend to have a greater effect to a consumer economy then tax cuts to the rich. Basically €200 extra a year to a poor family is going to enter the economy a lot faster and be of more benefit then €200 to the rich family. The rich families 200 might go on a foreign holiday leaving the economy all together the poor families 200 however will go more then likily into the local economy stimulating growth, jobs and tax revenue. The rich familes 200 could be seen in many ways to be foreign aid. Same goes for the minimum wage. A rise in the minimum wage will do a lot more for the economy then a lowering of tax on share dealing for instance.

There is of course a limit to how much you can raise minimum wage. Eventually the increase in consumerism is going to not balance out the increase in cost and lead to high unemployment a type of Laffer curve if you will. But the minimum wage in America is no where near that point yet. Even the rise to $7.25 is well below the Irish minimum wage and we have lower unemployment. If the chairman of one of the most successful corporations in America can see that why can’t the US senate.

As for the argument that (again from the Disillusioned lefties)

Why is a coercion-free agreement between two adults of sound mind, with positive affects for both of them and no adverse affects for others, not permitted?

The problem with that statement is that work at this level is a zero sum game. The person looking for the job has more to lose then the employer. He has to pay bills, have debt, put food on the table etc etc. The employer can find someone else. Hence there is no coercion-free agreement.

However raising minimum wage is not the magic bullet solution to poverty as the above OP-ed in the Wall Street journal points out.

In truth, his[ed. Sen Kennedy] proposed rate of $7.25 an hour won't lift many poor families out of poverty because as many as 64% of the earners in these families already get paid more than $7.25. New research by Joseph Sabia at the University of Georgia and Cornell's Richard Burkhauser indicates that factors other than wages--such as working fewer hours and supporting large families--are holding them down.

So maybe some of my readers are wondering have I lost my right wing views, will I start supporting Labour and calling for the fall of the bourgeoisie. The answer is no. Indeed my views have not changed. But if supporting a higher minimum wage makes me no longer a capitalist fine call me a consumerist from now on.


Anonymous said...

I believe the point which the DLs made was precisely that it wasn't a zero sum game. Just so that we're clear, a (two player) zero sum game is one in which gain for either person is directly proportional to the loss suffered by the other. This is relevant because many statist arguments in favour of intervention in this kind of situation are based, consciously or not, on the idea that the weaker player is suffering to the extent that the stronger player gains from the voluntary agreements between them - when in fact they are both gaining.

The fact that, as you put it, the person looking for the job has more to lose then the employer, is not an argument in favour of limiting their options. If the job they do is worth less than the minimum wage, employers are simply going to have to stop employing. That is the reality. The only way of combatting this is by somehow forcing employers to create jobs against their will, which won't be pretty.

It's also not evidence that there is coercion involved.

It would be great if everyone could afford everything. But this is impossible in the real world, and laws which inhibit the creation of wealth, especially by the poor, only hurt them. That's why Thomas Sowell said "The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics."

Simon said...

ya should have read is a zero sum game. corrected now. At a certain point this comes into effect. Better off on the dole.