If I’ve said it once I’ve said it a thousand times, if you wanna sell more beer, lower the price. The same concept exists for labor. If you want people to buy more labor, lower the price of labor.
But even as we face unprecedented levels of unemployment, there are people in the world that wanna make it harder for people to hire people. They suggest that the real value of the current minimum wage is low and that we should consider raising it match past level.
I don’t understand how pricing low margin workers out of the job market right now makes sense. And the Economist agrees with me.
The idea that increasing the cost of hiring someone, already being done through added regulation [Obamacare and insurance mandates anyone], is roundly recognized as a bad one:
…this is terrible timing for a proposal like this. The unemployment rate for workers without a high-school diploma is currently 13.1%. For workers between 16 and 24 it’s 16.0%, and for those between 16 and 19 it’s 23.2%. These are not high marginal productivity workers. I’m trying desperately to think of a dynamic in which raising the cost of employing these people increases their employment, but I just don’t see it. The only real mechanism I can imagine is one in which the rise in minimum wage redistributes money from rich owners of capital to poor workers with a higher marginal propensity to spend, thereby increasing aggregate demand. It is very hard to see how this effect could be big enough to increase total labour demand despite the higher wage, particularly given the relatively small number of workers impacted by the minimum wage.
Now I suspect that my friends and family that support higher minimum wages do so out of the most noble intentions. There is no malice of intent there. They honestly are trying to make the case that no ones time should be valued so law that they can’t depend on a wage that is decent. I get that. I get the idea that we’re trying to help the struggling have a better run at life.
But this isn’t the way to do it:
The real earnings of the poor is clearly a concern, but one would think that a reduction in unemployment among low-skill workers should be top priority for those that care about such things, not least because tight labour markets are likely to be most effective at generating broad-based, sustainable increases in real compensation.
If you REALLY wanna help the poor, get them a job and coach them to keep it until they find a better one:
The Immediate Prerequisites to Success Are:
- Receive a good education [graduate high school]
- Work full time
- Marry [And do it before having kids]
If we wanna really help the poor, we need to work as hard as we can to GET them a job. We do NOT need to make it HARDER to find that job.