Reply To: The Minimum Wage


“1) But if there is a large supply of low-skilled labor, then businesses will be able to exploit workers and charge extraordinary low wages, since they know they can find another employee if the person quits.”

First of all, I think, low-skilled labor is always the most abundant of all, their supply will always be the largest of them all. That is because poor, uneducated people have most incentive to create new children. The general argument applies here too: when a system is poor (low capital investment) it has to pay all attention to short-term projects. Only as it gets richer, it gets freed to engage in longer-term projects too. So, poor children are put to good use very early on, and poor families tend to have a lot of them. If this natural process is seriously distorted (by taxation rich–>poor), then the children-making slows down, and the whole society moves toward a slow self extinction by depopulation.

These low-skilled workers will accept jobs/salaries that benefit them. They will not accept salaries below their elementary sustenance… which itself kinda sets a natural “minimal wage law”. If they can not find any jobs to sustain themselves (in the absence of MW law) that very limitation is regulating their numbers in the long run. A poor family may have 5 kids and benefit from their early labor, but will not have 10 kids because some of them could not sustain themselves… its a big self-regulatory feedback loop. The result of this mechanism is that the number of low-skilled workers increases only as much as society gets richer. In other words, poor people benefit A LOT from society getting richer because they can immediately increase their numbers. And what gift is more precious then the gift of very life??!! What do rich people get as society gets richer? One more yacht? One more airplane or a castle? That’s not much in comparison! Poor people, low-wage workers are the biggest beneficiaries of economic progress.

Also, at this point Mises will step in to say that in capitalism there is always need for workers. If governments do not interfere, there is never enough work force. These poor, low-wage, people are still very useful and needed! They WILL be offered wages to sustain themselves, and from then on they can (if ambitious at all) learn through working and climb up slowly, and then create something, if just a little better, for their children, etc.

Look at the example from above, poor families having lot of children… even the labor of a small child can be put to good use – a child can benefit more then what it costs, and still have a nice family and a childhood to be proud of later on!! Mises was so right, there is never enough workforce.

MW law messes this huge complex mesh of feedback loops and information dynamics in many ways.

Finally, and I don’t know why people often forget this – working is therapeutic. Existential struggle, trying to make ends meet for your family, having ones ego shattered by too much expectation etc etc – all this struggle is very healthy and invigorating. At the end, when a person does manage to survive against the odds and provide for a family – this is so rewarding and satisfying and something one can be truly proud of. MW messes even with this by gluing people to welfare.

“2) Well, if they can’t get hired for the minimum wage, that’s what welfare is for.”
Well, if they can’t live normally for being repeatedly struck on the head with a hammer each time they regain consciousness, that’s what universal health care is for.

Wouldn’t it be more fair to at least give them a choice – either to work below MW in the hope of getting some skills and then moving on, or to live on welfare and be stuck there and rot?

“He seems to think if the minimum wage is repealed then all wages will drop across the board, not just wages that are set at minimum wage, because employee’s and employers need a bench mark to set their wages, so he says.”

The simple truth is that if MW is dropped, wages across the board will effectively increase simply because it’s good for the economy, and a better economy rewards across the board.

Employers do not have the freedom to play with their wages according to MW level, as long as they have to compete for workers. If there is some sort of monopoly, a cartel, that’s a different subject. If, upon dropping MW, ALL employers in concert, like a gigantic cartel, would decrease wages then yes, wages would go down. But for that they don’t need MW.. if they can organize in such way they can do it tomorrow. That situation would be insanely unstable – a single employer could increase his wages, and the whole cartel would come crashing down as workers would flock to that guy. Every single employer could only dream that that would actually happen, and that he be the one to benefit from such tremendous stupidity of everybody else. So this will never happen.