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Minimum Wage, Maximum Stupidity
Peter Schiff
Lew Rockwell.com
Monday, July 13, 2009
In a free market, demand is always a function of price: the higher the price, the lower the demand. What may surprise most politicians is that these rules apply equally to both prices and wages. When employers evaluate their labor and capital needs, cost is a primary factor. When the cost of hiring low-skilled workers moves higher, jobs are lost. Despite this, minimum wage hikes, like the one set to take effect later this month, are always seen as an act of governmental benevolence. Nothing could be further from the truth.
When confronted with a clogged drain, most of us will call several plumbers and hire the one who quotes us the lowest price. If all the quotes are too high, most of us will grab some Drano and a wrench, and have at it. Labor markets work the same way. Before bringing on another worker, an employer must be convinced that the added productivity will exceed the added cost (this includes not just wages, but all payroll taxes and other benefits.) So if an unskilled worker is capable of delivering only $6 per hour of increased productivity, such an individual is legally unemployable with a minimum wage of $7.25 per hour.
Low-skilled workers must compete for employers’ dollars with both skilled workers and capital. For example, if a skilled worker can do a job for $14 per hour that two unskilled workers can do for $6.50 per hour each, then it makes economic sense for the employer to go with the unskilled labor. Increase the minimum wage to $7.25 per hour and the unskilled workers are priced out of their jobs. This dynamic is precisely why labor unions are such big supporters of minimum wage laws. Even though none of their members earns the minimum wage, the law helps protect their members from having to compete with lower-skilled workers.
Employers also have the choice of whether to employ people or machines. For example, an employer can hire a receptionist or invest in an automated answering system. The next time you are screaming obscenities into the phone as you try to have a conversation with a computer, you know what to blame for your frustration.
(ARTICLE CONTINUES BELOW)
There are numerous other examples of employers substituting capital for labor simply because the minimum wage has made low-skilled workers uncompetitive. For example, handcarts have replaced skycaps at airports. The main reason fast-food restaurants use paper plates and plastic utensils is to avoid having to hire dishwashers.
As a result, many low-skilled jobs that used to be the first rung on the employment ladder have been priced out of the market. Can you remember the last time an usher showed you to your seat in a dark movie theater? When was the last time someone other than the cashier not only bagged your groceries, but also loaded them into your car? By the way, it won’t be long before the cashiers themselves are priced out of the market, replaced by automated scanners, leaving you to bag your purchases with no help whatsoever.
The disappearance of these jobs has broader economic and societal consequences. First jobs are a means to improve skills so that low-skilled workers can offer greater productivity to current or future employers. As their skills grow, so does their ability to earn higher wages. However, remove the bottom rung from the employment ladder and many never have a chance to climb it.
So the next time you are pumping your own gas in the rain, do not just think about the teenager who could have been pumping it for you, think about the auto mechanic he could have become – had the minimum wage not denied him a job. Many auto mechanics used to learn their trade while working as pump jockeys. Between fill-ups, checking tire pressure, and washing windows, they would spend a lot of time helping – and learning from – the mechanics.
Because the minimum wage prevents so many young people (including a disproportionate number of minorities) from getting entry-level jobs, they never develop the skills necessary to command higher paying jobs. As a result, many turn to crime, while others subsist on government aid. Supporters of the minimum wage argue that it is impossible to support a family on the minimum wage. While that is true, it is completely irrelevant, as minimum wage jobs are not designed to support families. In fact, many people earning the minimum wage are themselves supported by their parents.
The way it is supposed to work is that people do not choose to start families until they can earn enough to support them. Lower-wage jobs enable workers to eventually acquire the skills necessary to earn wages high enough to support a family. Does anyone really think a kid with a paper route should earn a wage high enough to support a family?
The only way to increase wages is to increase worker productivity. If wages could be raised simply by government mandate, we could set the minimum wage at $100 per hour and solve all problems. It should be clear that, at that level, most of the population would lose their jobs, and the remaining labor would be so expensive that prices for goods and services would skyrocket. That’s the exact burden the minimum wage places on our poor and low-skilled workers, and ultimately every American consumer.
Since our leaders cannot even grasp this simple economic concept, how can we expect them to deal with the more complicated problems that currently confront us?
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32 Responses to “Minimum Wage, Maximum Stupidity”
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July 13th, 2009 at 6:14 am
If only the world were this simple…
July 13th, 2009 at 7:06 am
PROFIT is the motivation of business. No boss EVER hired someone at a minimum wage position to benevolently give him a stepping stone to a life career. He was hired because it was profitable. The motivation is the same today. Most life/careers have been exported overseas where the minimum wage is pocket change.The ONLY minwage jobs let are the ones that can’t be exported and that noone would do for 10cents an hour and even if they could find some suffering bastard to work at that wage does anyone honestly believe that the price of their goods or services would go down??!! The government is getting antsy because almost all we have left in this country are crappy minimum wage jobs and they hope that by throwing us a couple of extra bucks a week our way will make us shut up and be good little citizens and congress will look like benevolent heroes of the working class. What a JOKE! An evil joke as it was their legislation that caused the mess in the first place. As for automation and ’self-serve’ (a form of automation) that’s been going on worldwide for more than a century. What a big steamy pile of BS, who is this govshill?
CivilianResistance Reply:
July 13th, 2009 at 1:14 pm
exactly. Its partially government manipulation but mostly greed is the reason for loss of jobs. Our children and their children will be in DIRE trouble as technology advances. Machines will be smarter and more capable. At my job, an assembly/bottling plant, one motion sensor with a robotic arm can be purchased NOW and eliminate 20 jobs. Thats a reality right now in a real job. Imagine when computers and robots will be able to learn a skill easily and perform simple and difficult tasks such as welding and machine repair. Even the skilled will be disposable/useless. The only job skill will be needed is robotics, engineering/repair. And that’s if any companies are still left operating in the US. Paints a scary picture eh?
Jmceloim Reply:
July 13th, 2009 at 11:55 pm
No doubt shocked and awed. You tell em! Employers are out for the buck. They don’t give a crap whether you can actually survive on their minimum slave wages or not, let alone whether you can make a career out of your slave labor. You are nothing more to them than a means-to-an-end -their profit! Perhaps now would also be a good time to remind everyone -at least anyone seeking the truth of the matter- that Capitalism itself -which is in itself diametrically and diabolically opposed to the concept of Democracy- will alway produce these same results. That is the unignorable and unavoidable results of Capitalism. You are as disposable to the Capitailsts as a wrapper from a piece of gum. Capitalism would not function, and therefore even exist, if it were not for the ability and/or power to exploit use and abuse someone somewhere. there is a reason why 1 or 2% of the elitist own 50% or more of all wealth. It just didn’t happen in a vaccum.
July 13th, 2009 at 7:16 am
Sad to see this anti-minimum wage article posted here…. this type of pro-anarchy is why I am turned off by Jones (that and his rampant Homophobica – he is beyond a Straight Supremist).
When the corporate welfare is ended then the minimum wage can be ended.
Shockingly anti-worker propoganda more suited for Fox Nation.
Jmceloim Reply:
July 14th, 2009 at 12:14 am
RJP3, I also find it sad -but not surprizing in the least. There are large numbers of Pro-Democracy, Pro- Constitution, Pro- Liberty, Pro-”Free Market” (which is anything but free) Anti-NWO advocates that are incapable of comprehending the fact that Capitalism itself is one of their most insidious enemies.
As for Fox News, you hit that nail on the head. But it goes much deeper than them. In this nation that prides itself as the “land of the free and home of the brave” it is in fact a standard historical political and economic philosophy -as well as an agenda- among the Conservative Republican party in general and always has been since their inception. Fox News, is of course, their mouthpiece.
No one should really be surprized then, to have heard the codswallop that dribbled out of Bush’s mouth regarding illegal immigrants taking “jobs that Americans won’t take”. Fact is, it was and still is, the go-nowhere slave wages that Americans would’nt take. I once was amazed that anyone could find one iota of honesty in a president that publically spouted such blantant lies.
July 13th, 2009 at 7:23 am
Lew Rockwell is a libertarian – something to be just as afraid of – Libertarian Anarchy that supports the wealthy and the bigots. He is anti-state/pro-market.
Capitalist Anarchist
July 13th, 2009 at 7:43 am
This is one of the biggest pieces of crap I’ve ever read, and it’s obvious just from reading it that this guy’s never been paid minimum wage in his life.
It’s this completely unrealistic, benevolent view of business & capitalism that makes conservatives look like morons.
Most bosses pay their employees the very least amount they can get away with, and fight tooth & nail against even basic cost of living increases.
The idea that the infallible market will sort it all out is ridiculous too.
Suggesting that someone who can barely get by on the low paying job they have is going to be able to just quit & go somewhere else is ludicrous, and every single doom & gloom scenario regarding minimum wage increases – or overtime, or sick days, or vacation time, or child labor laws, or workplace safety, or maternity leave – has repeatedly proven to be wrong.
nixon Reply:
July 13th, 2009 at 11:50 am
so all of you geniuses here are suddenly economists
i guess its too bad you didn t get that entry level job
and develop some skills
did you even read the article before shooting your mouth off
I'm So Bored With The U-S-A Reply:
July 13th, 2009 at 11:58 am
Yes, Dick, we did…
July 13th, 2009 at 7:54 am
$6.55 per hour X 40hrs work =262.00-state taxes-federal taxes-retirement-union dues-ss(goes to the queen of england)-food costs – utilities- clothing-shelter-gas=0
slaves wait until the carbon tax is there such a thing as negative numbered paychecks?
If people need any more concrete explanation of this, start with the staff of life, a loaf of bread. The simplest thing; the poorest man must have it. Well, there are 151 taxes now in the price of a loaf of bread — it accounts for more than half the cost of a loaf of bread. It begins with the first tax, on the farmer that raised the wheat. Any simpleton can understand that if that farmer cannot get enough money for his wheat, to pay the property tax on his farm, he can’t be a farmer. He loses his farm. And so it is with the fellow who pays a driver’s license and a gasoline tax to drive the truckload of wheat to the mill, the miller who has to pay everything from social security tax, business license, everything else. He has to make his living over and above those costs. So they all wind up in that loaf of bread. Now an egg isn’t far behind and nobody had to make that. There’s a hundred taxes in an egg by the time it gets to market and you know the chicken didn’t put them there!
taxed to death
Ronin Reply:
July 13th, 2009 at 11:35 am
Thank you at least someone here actually gets it. The other piece of the puzzle is corporate advertising, and the decline of farmers markets. You know how much money you have to spend to certify a single crop as “organic” these days? People would not spend nearly as much money if they were able to just buy straight from the farmer, or grow the food themselves. Sadly this is why so many are going to die within the next few years. When the first depression hit us over 80% of people lived on rural farms… now the tables have completely turned.
You know why the Inca empire did so well till the Spanish showed up? It only took one man 65 days out of the year to provide enough food and materials for his family to live… the remaining time was spent on community projects. By the way Joe in JT screw your idea of capitalism. That guy wouldn’t be using a 3000 dollar golf club if he couldn’t buy it at that price from an entrepreneur who knew someone would pay that much for it. Not everyone is evil greedy, but it is easy to fall into. Bill Gates for example is the largest single donation entity in the world, and he pays ALL of his employees VERY well.
July 13th, 2009 at 8:25 am
What a crock of shit commentary. Another fucking NeoCon preaching to the world the he needs more “boys” for his slave labor camp, and requires practically no pay. Just all the bene-ies going into his fucking pocket. While he’s slapping away on the golf course with his 3000 dollars clubs and rides in his own golf cart, his mind wanders about how maybe tomorrow he can jew his 6 low paid workers out of a few more cents. He thinks ..”maybe I’ll not pay them for their 10 minutes breaks”? Then his mind furiously does the adding to come up with a figure, that being the money he would save. So that next week he can go on a ski trip to Big Bear. I fucking HATE people who own a business and do not pay their employees a proper living wage. Nothing in this world makes me more angry than watching fat fucking corporate assholes live it up while they pay their help…nothing but peanuts.
July 13th, 2009 at 10:19 am
that is why I turned to selling drugs, and a life of crime, because I was unable to be trainned in a minumum wage job. I used to be skilled in manufacturing and landscaping, but because there are no pump jokey jobs available, i can’t learn to be a mechanic, and must rely on welfare and the drug trade in order to make a decent living.
I'm So Bored With The U-S-A Reply:
July 13th, 2009 at 11:59 am
Is this Ollie North?
armed druggie Reply:
July 13th, 2009 at 2:27 pm
yes, me and my buddy dick armitage need your kids to keep going to high school to maintain our marketplace, the armed serives as you know just conquered a few countries and made them safe for drug production. We will try to sell most of the heroin to bad countries like Russia, and France, those commie bastards! Pay your taxes! Down with minimum wage!
July 13th, 2009 at 12:23 pm
Just as war-obsessed neocons and gay-obsessed Christian fundamentalists jointly hijacked the “conservative” movement, Austrian School cultists have hijacked the “liberty” movement:
http://propagandamatrix.com/fo.....084.0.html
It is high time that all thinking members of the liberty movement to stop letting Austrian Schoolers portray themselves as the divine gatekeepers of any and all things having to do with “liberty,” “property” and “free enterprise.”
July 13th, 2009 at 1:48 pm
The wages in this country would be fine if they were not taxed to death before you even get your pay check I make about $400 a week and the taxes are atrocious, i end up taking home about $300. that is outrageous how the government after all of the excise taxes they put on goods and services, only then to take another 10% right of the top before you even get your paycheck. When the American revolution was started it was “no taxation without representation,”but now we have representation and were getting fucked twice as hard. I think we can safely say there is no need to worry about becoming slaves, we already are there. When people think of slavery in modern times it brings up images of boats and African Americans. It brings images of civil war and Southern gentlemen. What they fail to consider is think of the progenitor of modern slavery the Roman Empire. they had slaves from every corner of the world. They basically fell into to categories though. one was the un-educated manual labor type that did all of the hard work and drudgery. The other was the educated slave that was educated to perform clerical or secretarial task to the roman emperor and aristocracy.
On the Global Plantation the same philosophy applies. The third world is the uneducated common slave. while developing countries are semi-skilled labor for manufacturing, and the “developed world” are the educated slaves serving there masters with every action. The method of bondage for the educated slave is the promise of liberation one day, and the fear of losing their coveted positions of power and being made to work the field,as traditional imprisonment doesn’t work on the educated mind.
July 13th, 2009 at 1:51 pm
This article is ridiculous. Minimum wage caps DO NOT LIMIT JOBS, THEY PREVENT JOBS FROM HIRING CRAP WORKERS WHO ARE WILLING TO WORK FOR PEANUTS. In the time of the baby boomers WE DIDNT NEED A MINIMUM WAGE because money was worth so much more. You could actual buy stuff with a penny! You could flip burgers and make the equivalent of 40k a year! If there was no minimum wage there would be so much competition for crap jobs that everyone would be a poor slaves IN THESE DAYS. If money wasnt so worthless all would be well and good but if everyone hired people for 3 bucks an hour what would even be the point of working! Granted lower wages could translate into lower prices for consumers which could translate into money being worth more, but these days people would just pocket the difference. Back in the old days people learned trades and apprencticed, these days they DON’T. The problem isn’t minimum wage, its TAX and governmental certification and middle man operations. Also corporations who MAKE WAY TOO MUCH MONEY and then upcharge everything and underpay their workers. If the minimum wage was $20 bucks an hour PEOPLE WOULD HAVE A HELLUVA LOT MORE MONEY TO SPEND and businesses would be able to PAY THE WAGES!!!!
July 13th, 2009 at 2:29 pm
Know a feller that conned his boss into laying him off. He takes home more on unemployment than he did working his job.
July 13th, 2009 at 2:49 pm
My buddy Dick just told me to remind everyone to take their required mandatory shots. Our market is not big enough to satisfy our demand all our new poppy fields, and the men are in want for whores, and in Dick’s case, little boys, and healthy people don’t need drugs. Just business, you understand.
July 13th, 2009 at 6:20 pm
America’s Government has been it’s own Corporation since the “Act of 1871″ was written into Law and in 1933 you were made into the SLAVES of this Corporation in the “NEW DEAL” and the “Trading With the Enemies Act” you were given the “Opportunity” to make better wages and through the art of deception, you have become “Comfortable” with these mediocre wages and you have grown to accept these wages since that time.
July 13th, 2009 at 6:31 pm
Oh Boo Hooo. Why don’t you prissy boot lickers start your own company. Friggin lazy ass wannabees.
July 13th, 2009 at 7:04 pm
America grew with no regulation and now collapses from all regulation all the time. The vision of the left appears to be one honest woman with a real job for every 10 members of the “uh-oh” squad standing around with clipboards making sure everything is “fair”. Current political thinking does not judge an economy by its output or productivity in dollars but by the number of people it can put on “broadened and extended” unemployment benefits. Recipe for disaster written by fear-mongering Sieg-Heil-comrades.
Austrian School=robber-baron economics Reply:
July 14th, 2009 at 7:19 am
moose asserts above that America “now collapses from all regulation all the time.”
News flash: last year’s financial meltdown was caused by the quadrillion-dollar derivatives bubble (see: http://www.webofdebt.com/artic.....tives.php), and that, in turn, was caused by the *repeal* of the Glass-Steagall Act — a government regulation:
http://www.globalresearch.ca/i.....;aid=10588
There are, of course, a lot of bad regulations (e.g. occupational licensing) that cause more harm than good, but Glass-Steagall clearly was not one of them.
July 13th, 2009 at 8:17 pm
Bad call PPlanet… putting this in the news section! Shame on u.
July 13th, 2009 at 11:12 pm
Many posters here have an excellent point re: taxes…they’re killing US businesses and consumers.
But you detractors haven’t refuted the main logical argument: If $8/hr is good, isn’t $10/hr better? Wouldn’t $20 be twice as good as that? Wouldn’t $100/hr be five times better than that? The logical conclusion of minimum wage policies would be massive unemployment and high prices. The inverse also holds: for $100/hr, I’d be out of a professional job…for $2/hr I’d hire you to shovel my walk or mow my lawn or whatever no problem. Therefore, minimum wage laws lead to higher prices and unemployment.
I used to think that a fair compromise would be a ‘cost of living’ increase that matches inflation…but IMO that would lead to a death spiral of higher prices demanding higher wages, demanding higher prices, etc…and at certain points each class of business wouldn’t be able to pass on the costs and would go down one by one.
Wage and price deflation *can* be good, if it’s orderly…$3-5/hr might be OK if bread is $.35, milk $.50, a small apartment $150-300 and a small car $2500…the real problem here is that medical and education service prices have increased much faster than wages and inflation (likely due to high level of costs involved with regulatory compliance). Not that there should be *no* regulation re: safety and cleanliness etc, but we must recognize that it costs us all (in my personal experience Sarbanes-Oxley comes to mind as an expensive do-little regulation regime).
And seriously, wanting a good life for your family is a prime motivator to stay in school and “make the right moves”…we have, as a country, financed a false “American Dream” of living a big TV lifestyle on a minimum wage paycheck through credit (debt) and now we’ve hit the wall. If you want to raise your children on minimum wage that’s your right, but I guess you’d have to want them to have a lot of “character building experiences” (and they *are* actually…how many famous people have said “I’m from a poor family but we made it work, etc)
I agree that we cannot allow a return to the sweatshops of the past, but think about this: if we did have a Greater Depression, do you want the government telling you that you can’t make $5/hr because you can’t make $8(or whatever), and now you make $0? Would you like to be taken to court because you had a neighbor/friend/needy person work for a few bucks or a meal (and didn’t pay MW or taxes)?
I don’t know about the comments of Austrian economist types taking over the concepts of freedom and liberty…I’m sorry you feel that way…FYI there’s a whole Georgist school of libertarian thought out there too:
http://en.wikipedia.org/wiki/Georgist
-Dave Powell
LP-PGH Chairman
Jmceloim Reply:
July 14th, 2009 at 12:36 am
“Many posters here have an excellent point re: taxes…they’re killing US businesses and consumers.”
How so? Fact is, in any Capitalist “free market” system, Business just passes their tax burden on to the consumer, along with their overhead costs and slave wage costs, in the form of higher prices. And when they cannot do that, they simply outsource and ship their manufacturing to thirdworld countries where they have a fresh pool of low-wage slave labor to exploit. I don’t know what planet you are from, but ask yourself when was the last time you saw the cost of goods and services go down?
“Capitalism” -a 5. buck college word for “greed”- is inherently and unavoidably evil.
DaveP Reply:
July 14th, 2009 at 1:23 am
Great! We agree that taxes are passed on to the consumer.
I would say that just because it’s called a “Free Trade Agreement” doesn’t mean that it is one. I am no expert, but I understand that there are tax advantages that add to the problem of off-shoring.
Generally, I would not advocate ceding our rights to any super-national coalition (ie: the WTO) that might override state’s sovereign rights.
Re: costs – I’ve seen costs go down in electronic and computer equipment like you wouldn’t believe…how about Lasik surgery? Knee replacement…Even childbirth…IMO because you could CHOOSE where to have your baby, the nurses would literally act like room service if you wanted something in the middle of the night (blew my mind)…but that’s just my personal experience.
Compare that to the lady that dies in the waiting room: http://www.youtube.com/watch?v=9lKUwBCIBzA
-DaveP
July 13th, 2009 at 11:48 pm
There is a problem with your theorys. Its called reality. The 3rd world workers have their rents subsidized,their food is subsidized and their health care is paid for by the property taxes that support the local hospital. They use and abuse the sytem. Low wage 3rd world workers don’t conform to the norms of this 1st world society. They take low wage jobs because 6-11 of them are willing to share a 2 bedroom apartment with one toilet. Standing in line to use the toilet or bathroom or bucket is acceptable it is their norm. They are working low wage jobs that college students our young people use to do,who rely on their parents for their disposable income, or they are forced to live with their parents for years longer than they would if they had those low income jobs. The word for what is happening to the 3rd world worker is exploitation, they are using these workers to help destroy the standard of living in this country. Try to rationalize it anyway you want. Wake up and realize what is happening. Don’t let the powers that be divide and conquer like they have over the centuries.
Austrian School=robber-baron economics Reply:
July 14th, 2009 at 7:34 am
@ Thomas Stainless: That is the most ridiculous, most self-discrediting BLAME-THE-VICTIM account of what is in fact a BANKER-engineered problem that I’ve seen in quite a while.
http://propagandamatrix.com/fo.....ml#msg9042
July 14th, 2009 at 6:03 am
As an employee for years at minimum wage (or less with unpaid overtime), or unemployed, cold, and hungry, I saw this for myself. What Peter Schiff writes is correct, simple, even obvious once you have been there and seen the workings for yourself.
Why the abusive responses, and labelling of a person? The way I read it, it is not only true, he is trying to help people.