Toe2Toe: Should the minimum wage stay or go?

Brett Frazer: We ought to raise the minimum wage

The federal minimum wage can barely provide a subsistence wage in the status quo. Working 50 hours a week at minimum wage gives an individual approximately $1,100 after taxes. After rent, utilities, food purchases, transportation, health costs, and unexpected expenses are considered, there is no money left. In fact, in most cases there won’t be enough money for an individual to cover all their expenses. If anything, policy regarding the minimum wage should focus on raising the minimum wage, rather than abolishing it.

Abolishing the minimum wage means that jobs will move from adults, who live on their own and require a higher living wage, to teenagers and individuals who are subsidized by their families. If Carrs Quality Center were not forced to pay its employees a minimum wage, people subsidized by their families would be more willing to negotiate a lower wage. What this means is that the people who can least afford to lose their jobs will not be able to find work. Unskilled workers who aren’t subsidized by their families, despite their work ethic, will not be able to find employment.

Of course, if the author of the other article in this column were willing to offer massive government subsidies to offset this negative effect, perhaps the story would be different. I am willing to bet that he’s not willing to expand government to provide the necessary social services to combat the flood of family-supported workers.

If the minimum wage were raised, individuals would be able to make a real living wage, and would be incentivized to find work. In the status quo, and individual can work full time at minimum wage and make only marginally more than he would if were collecting unemployment. Working 40 hours a week for a negligible increase in income does not create incentive to find work. This phenomenon is not driven by laziness, as some often say. Rather, this is simple rule of economics. The law of diminishing returns states that rational actors will cease to substantially increase their effort if the returns are so greatly diminished.

There are two ways to combat this problem of perverse incentives. First, we could abolish unemployment. This would mean that people who cannot find work would be left to fend for themselves. Or, we would raise the minimum wage. Both policies would have the same net effect. If an individual could earn substantially more working than they could collecting unemployment, then there is a new incentive to find work. Moreover, for those individuals who still can’t find work, there is still a social insurance program to protect them.

Daniel Mcdonald: Minimum wages hurt unskilled workers

The vast majority of advocates for a minimum wage have good intentions; unfortunately, minimum wage laws have a major unintended consequence that happens to be highly relevant to our current economic downturn. Minimum wage laws cause unemployment, hurting those they aim to protect.
A minimum wage is essentially a price-floor, which is a minimum price set by government at which a commodity can be sold. A result of a price-floor is to have the price of a commodity above the market-equilibrium. If the market determines that the price of soap is $1 and the government sets a price-floor of $2, then the consumer will be less inclined to purchase a bar of soap. And so there will be a left over supply of soap in the marketplace because the set price is above what some are willing to pay.

The same rule applies to labor. A wage acts in the same way as the price of a commodity. The employer is the consumer and the employee the producer. If the minimum wage is determined by law to be $8.50, and an employer determines that the skill of an individual can only justify $5, then there are only two options. The first is to simply not hire the worker. If the employer cannot hire him for the $5 at which he is worth, then the prudent policy is to find a worker who does justify such a wage. The second is to hire the man, which essentially equates to charity. Most businesses are not operating as charities but instead trying to make a profit, so as generous as this option may be, it cannot be expected to be the choice for most.

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Therefore, minimum wage laws make the extremely low-skilled worker, who is most often very poor, unable to be hired. He can either become dependent on government welfare or attempt to increase his market value by learning new skills, but the existence of the minimum wage makes it practically illegal to hire him in the eyes of a profit-seeking employer. Much like the price-floor on soap, a minimum wage creates unemployment by its mandate of an artificial price of labor, leaving many behind who fall under what the market determines the value of their labor to be.

With an unemployment rate of 9.2%, and youth unemployment at 26%, minimum wage laws are becoming increasingly cumbersome to economic productivity.

At the end of the day, the choice comes down to this: is it better to allow people to work for a low wage or to bar them from working altogether, forcing them to become recipients of welfare?