Wednesday, September 12, 2007

Minimum Wage/Living Wage

The entire country has a minimum wage, and now many Maryland businesses will be subject to the 'living wage'. Let it be known that the difference between the 'minimum wage' and the 'living wage' is about the same as the difference between an 'illegal immigrant' and 'undocumented alien'. A living wage is just a higher minimum wage that doesn't apply to everyone.

Mandated minimum wages cause unemployment. They do not help: they hurt. On, the first day of the first economics class you ever take, you learn that if the price of something is higher, people want less of that thing. If labor costs are higher, employers will not be able to hire as many people.

Moreover, the higher a wage is, the higher quality of workers it attracts. Let's say that a person with an MBA can earn $100,000 per year doing the very stressful job of trading on the New York Stock Exchange. Let's also say that a cashier at a supermarket with only a high school diploma earns $20,000 per year.

Now let's say that congress sets the minimum wage at $100,000 for everyone. The MBA guy will apply for the cashier job because he can make the same money with a lot less stress. The supermarket now has a choice: hire an MBA for $100,000 or hire someone with a high school diploma for $100,000.

Their choice is obvious. So the result is unemployment for the very people that the minimum wage is trying to help!! Before, high school grad was making $20,000, now he is making $0. The economy suffers even more because the MBA guy who used to be a valuable asset for trading stocks stopped doing that.

The living wage doesn't apply to all businesses. Think about it--if it's so good, why doesn't it apply to everyone? Answer: it's not so good.


PAUL said...

Brian...think about this--if you can live off of $6 or $7 or $8 an hour...go ahead and try it. You make it sound so simple, but it's not. Here's one for you-instead of focusing on raising the minimum wage a dollar or two, let's cut the salaries of corporate CEO's by hundreds of thousands or even millions, or in some cases by tens of millions. Are they really worth that? Is that right?
And finally, do you or I really benefit from a stressed out Wall Street trader at $100k or do you have more interest in, more in common with, and ultimately more at stake with him or the $20k per year cashier at the grocery store?
You also assume that the Wall Street trader and the grocery cashier all started out with equal chances to become unequal. While the Wall Street trader messes around all day long with numbers, and paper and screaming and phone calls and moving millions electronically, perhaps even helping to buy a grocery store chain, it's the cashier who helps you get food to the table.
There is no such thing as an absolutely free market--which is probably a good thing!
The choice is not so obvious. A rising tide lifts all boats, and you are saying that a grocery cashier does not have stress?

Brian Gill said...


Thanks for the comments. You raised a couple points, which I will try to briefly address. Businesses are not stupid--if they thought they could cut their CEO's salary by millions of dollars and be as sucessful they would do it. So as long as they have jobs--as long as their boards of directors think they are worth they money--then they are. And, people are better off making $6, $7, or $8 per horu, than they are making $0, which (unemployment) is what happens when a minimum wage is rasied above a market wage. And lastly, so long as an economic transaction happens voluntarily, it benefits the economy. Perhaps the cashier offers a more tangible benefit, but the trader offers a benefit just the same, otherwise there would not be a demand for his services.

PAUL said...

Brian You mean a good CEO cannot be had for a cool million? I am a shareholder in some companies and I don't want to see the CEO making millions....I do want to see the workers making a liveable wage...why should we settle for millions of workers below a livable wage so an elite can have a wage waaay, waaay beyond even being comfortable and wealthy??? That should be returned to shareholders... Just wait until you go to the grocery store and find the cashier cannot add or subtract, has teeth falling out and her hungry kids are at home alone because she cannot afford daycare...Okay, so I am waxing poetic. My point is we are the wealthiest country and what makes us strong is a great middle class, yet we are dwindling away....however, the rich keep getting richer. When oh wehn will it ever trickle down?