One of the factors in this last Great Recession that began in 2008 has been the Federal increase in the minimum wage implemented by US Congress. Some believe that minimum wage laws actually increase unemployment, but it will be an uphill battle to convince most people that the current unemployment rate, especially of young people, is the direct result of the increase in minimum wage. I would argue it is at very least a factor.
The builder of the library at the seminary in Africa where I taught told me a story. He built these massive arches with concrete, all of it mixed by hand, and each arch in a single pour. Each arch would thus keep dozens of unskilled laborers going several hours as they mixed with shovels and 5 gallon buckets. One day, one of the workers said, “You know Ken, you should really buy a concrete mixer: just think how much concrete we could make with a mixer!” So Ken said to them, “Ok. I’ll buy a mixer but first you have to tell me which eight of you don’t want a job anymore.”
This is a general principle business: if labor is cheaper than a machine, people will have jobs. If machines are cheaper, then people get replaced by machines. Fearsome Tycoon makes this same point: “Wal-Mart responds to a minimum wage hike by replacing more cashiers with machines … ” At the same seminary, workmen cut grass with machetes. Suppose the government decided that everyone deserved a raise and so they raised minimum wage. Guess what? The seminary would buy lawn mowers and lay off a bunch of people. If they said you can’t lay off people? They would just quit that country and go somewhere which didn’t have such onerous labor laws. (Fearsome Tycoon makes this point too: quitting is always an option).
In Ontario the minimum wage is about $10. So as a consequence, there are self-serve check-outs in many of the stores here, including Home Depot. They are not preferable to a human cashier, but one person making minimum wage can monitor four lines of customers.
Do you want high unemployment? Increase the minimum wage and make sure that payroll taxes are high. This increases the cost of labor and people will be replaced by machines or businesses will just simply quit.
In previous post, I’d mentioned how a picture of an native in my hometown of Anchorage, Alaska, did not fit the Business Insider’s narrative. I don’t know where these folks get their pictures. The screen shot looks like this appears on the headline to an article by Joe Weisenthal:
It doesn’t really look like the India Stock Market to me. That looks like this (click on image for source):
Notice it is all men wearing shirts and no ties. There are no veiled women wearing hats. No crescent moon knives. The Business Insider provides images for their articles which are inconsistent with reality, but it does say something about their knowledge or rather their prejudices about India. I wonder what the source of the picture is. Furthermore, I wonder if it is indeed a picture of the India stock market as Joe Weisenthal’s use of it would suggest. If anyone knows the source of the picture, please let me know. If I am wrong, mea culpa in advance. But my instincts tell me there is something wrong with this picture.
Imagine that you maxed out your credit card, your line of credit, and that you are late making payments on your Visa, your car loan, your mortgage, and all your other bills. The bank comes to you and says if you don’t pay your credit card bill, your car loan, your mortgage, and your line of credit, we will seize your car, your house, and anything else of value that you may have bought with the credit card. Now you look at your bills: they are $3500 every month. But your monthly net income is $2000. You’re insolvent.
Timothy Geithner, the Treasurer of the United States says that if Congress doesn’t increase the debt limit the United States will default. Why? Because the bills are higher than the income. The United States is insolvent. This is the definition of insolvency. And Geithner is not lying. He is, after all, working for the Obama Administration.
So you say to the bank: Ok. I’ll be able to pay my bills. Just let me start another line of credit, and I’ll be able to make the regular payments on all my bills (mortgage, credit card, old line of credit, and car loan) using the new line of credit. The bank says sure. Then starts handing out the money. That bank is called the Federal Reserve, and it is monetizing the insolvency of the United States. When this happens, hyperinflation follows. It is just a question of doing the math.
(Hat tip: Monty Pelerin, “The Government is Like NPR pimped by Tim Geithner“)