Minimum wage

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.

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