Ugh, Minimum wage increase about ready to occur

President Bush was expected to sign the bill quickly, and workers who now make $5.15 an hour will see their paychecks go up by 70 cents per hour before the end of the summer. Another 70 cents will be added next year, and by summer 2009, all minimum-wage jobs will pay no less than $7.25 an hour.

How do you get a higher wage for people? Well, if you increase people's productivity, that is the obvious way. But the way that the minimum wage and unions do it is by throwing people out of work. If you reduce the number of people able to work, than the productivity of the marginal worker will increase. When you throw out enough workers from the job, the workers' productivity will rise by enough that it will cover the higher minimum wage.

Who gets thrown out of work? The least skilled of the workers' whose wages were previously below the new minimum wage.

Are the workers who get the new higher minimum wage really better off? Some are, but others are actually worse off. How could that be? Well, you have a lot of workers competing for a reduced number of jobs. The workers will compete against each other to get the job and they will try to do so until the benefits from getting the job are dissipated. This is the same type of competition that occurred when government imposed price controls on gasoline. People sometimes had to wait hours in line at gasoline stations to try to make sure that they were the ones who got this artificially cheap gasoline.



Blogger Kris said...

I was going to say, "Why don't politicians make policy decisions that take into account economics?"

I think a better question is, "Is there a way to change our system of government such that politicians have greater incentives to take economics into account when making policy decisions?"

People only do what is best for themselves. How can we make it so that the best thing for politicians is also the best thing for everyone else?

5/25/2007 10:37 AM  
Anonymous Anonymous said...

what I would like to know is how these moves toward a higher and higher minimum wage and the attendant loss of low paid jobs will work in a market where there is a large and growing supply of low skilled workers (immigration reform).
Rick M.

5/25/2007 2:04 PM  
Anonymous Anonymous said...

what I would like to know is how does this push for an ever higher minimum wage work in an economy where there is a simultaneous push for an ever larger unskilled workforce/underclass ie. the 12 million illegal aliens who are about to be given citizenship.

5/25/2007 2:22 PM  

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