Wednesday, January 24, 2007

Socrates and the Minimum Wage

As an exercise in Socratic style, this dialogue is a little lacking, but in terms of the laying out concisely the core issues with the minimum wage, it's brilliant.

Key points are:
1. Everyone realizes instinctively that one cannot require a large minimum wage, of say $20/hour, because someone has to pay for it. An arbitrarily smaller minimum wage causes the same problems as a big one, only to a lesser degree.
2. Not all workers have the same levels of skill and experience and they are thus not 'worth' the same pay; that is, not all workers generate the same value return for their employers.
3. An employer will not pay someone more than the value he/she generates for the employer, so someone incapable of generating the minimum value corresponding to the minimum level of pay will not have a job.
4. Even if it can be said that employers are too greedy to pay their employees a fair balance on the return their employees generate, that would also imply that they will not employ anyone where they would be required to pay not what's only fair, but even more.

The long and the short of it is that a minimum wage hurts in two ways:
1. It makes it harder for companies to expand where low-skill jobs are involved, meaning less economic activity and less wealth creation.
2. It makes it harder for low-skilled workers to get jobs. There is a ripple effect, and unemployment will rise.

If one would entertain cynical thoughts for a moment, then one might further suspect that
A. The consequences outlined above will have little impact on the livelihood of politicians who are "well off."
B. The damaging effect a raise in the minimum wage causes to those in difficult economic situations will help keep them 'dependent' on their malicious crusaders, those politicians who keep stay in power by keeping others down.

2 Comments:

  • Now if we could just this logic into law... But you and I know that's all but impossible.

    By Blogger Aaron, at 5:03 PM, January 25, 2007  

  • Pius XI Casti Connubii

    Paragraph 117. And so, in the first place, every effort must be made to bring about that which Our predecessor Leo Xlll, of happy memory, has already insisted upon,[90] namely, that in the State such economic and social methods should be adopted as will enable every head of a family to earn as much as, according to his station in life, is necessary for himself, his wife, and for the rearing of his children, for "the laborer is worthy of his hire."[91] To deny this, or to make light of what is equitable, is a grave injustice and is placed among the greatest sins by Holy Writ;[92] nor is it lawful to fix such a scanty wage as will be insufficient for the upkeep of the family in the circumstances in which it is placed.

    By Blogger John R, at 2:34 PM, February 15, 2007  

Post a Comment

Links to this post:

Create a Link

<< Home