A recent
op-ed in my beloved WSJ got me fired up about the minimum wage debate.
It is interesting to note that the majority of conclusions wrought by economists tend toward what is typically considered conservative policy. This is true while the majority of university economists, about a 3:1 ratio, are liberal.
Raising the minimum wage makes low-skilled workers, most of whom are minorities, less competitive. Less competitive you ask? Well who are they competing against? Answer: Machines (capital) and desperate, hungry, poor foreigners who are willing to slave in factories.
The reality and ease of outsourcing makes the minimum wage even more dangerous than in years past. Put your mind in long-run mode, put on your glasses, and lose your myopia. In the long-run, higher American labor costs mean fewer and fewer companies will plan or desire to operate domestically. It is true that American workers will usually be more productive because of the availability of capital and machines. Jobs here are more capital intensive such that an American worker will produce more bouncy balls than a Chinese worker because the American knows how to use machines better and actually has machines at his disposal. But if you think in terms of marginal costs and marginal production, then you can see that every time the minimum wage is increased another job will be exported. Higher labor costs mean that the U.S. worker has to be even more productive than he was previously to compensate for his greater cost.
The other threat are the machines (Be weary of I-Robot). The greater labor costs become, the more incentive owners have to make their production more capital intensive, which means people get fired. Again, think about marginal costs and production. For every penny more expensive a worker becomes, the ratio of his cost to his output decreases (productivity). At some point, after each incremental increase, it is going to become more profitable for the owner of production to substitute Marx’s prole with Asimov’s dreambot.
We need to avoid the five hour café break economics of Old Europe. The world’s economy is currently very strong. At the end of 2005 the world’s unemployment rate was 6.36%, while the U.S. rate was 5.11% (It is currently 4.6%). Meanwhile, the wonderfully progressive labor laws of Germany and France had their unemployment rates at 11.52% and 10.23%, respectively. Sure, workers in France enjoy comfy minimum wages and the job security to know that they have to stab their boss more that four times to get fired after they reach the age of ~26 (Not certain about the age). Remember all those young French people protesting their right to never be fired? Notice that the people in those protests were students, none of them were low-skilled, uneducated and unemployed French. The cost of giving those French college punks job security and a 35 hour work week is that 10% of Frenchies who are willing to work are unable to find a job. Very “progressive” and “caring,” eh? One of the best statements on welfare state labor laws and high taxation comes from the 2004 Nobel Economist,
Edward Prescott.
But you know, it’s progressive to make sure people have enough money, right?
