Abolish Minimum Wage

Lelouch24 · 2012-10-04T22:05:49+00:00

[color=#2e1a6b]The promoted purpose of minimum wage is to ensure that employees are getting paid lots of money so that they have a high standard of living. This sounds appealing on the surface, which is why many people support minimum wage. But as with any policy, you need to examine what it actually does rather than what its purpose is. What minimum wage literally does is forbid an employer to hire employees for a price that's less then a certain amount This increases the cost of production without increasing the amount of production. In order to accommodate for this, entrepreneurs have three options: [color=#2e1a6b]switching to capital (Machines that reduce or replace labor) [color=#2e1a6b]Outsourcing their labor [color=#2e1a6b]increasing the price of the products [color=#2e1a6b]The first option, switching to capital, is very rarely applicable, since technology is quite limiting. The Second option, outsourcing their labor, can only apply to goods, not services. The third option, increasing the price of the products, is the last resort when the 2 options above can't be used. When the prices are increased, demand for the product will decrease. This creates a surplus of supply that will result in the entrepreneur reducing his production, which reduces his demand for labor. Regardless of which option the entrepreneur chooses, the amount of labor demanded from the country's workers will be reduced. This distorts the entire labor market equilibrium. The supply of labor (employees) now vastly exceeds the demand for labor (entrepreneurs). The excess in labor supply relative to labor demand causes unemployment. The unemployment caused is not frictional unemployment (temporary unemployment as a result of switching jobs), instead, it is unemployment that will last indefinitely, until something happens to balance the labor market equilibrium. While the workers themselves are not indefinitely unemployed, the amount of people unemployed does not change. The excess in labor supply also allows the entrepreneurs to be selective about who they employ. There is so much labor available that entrepreneurs can refuse anyone and still find someone better. This causes discrimination against minorities and low-skilled workers. Since minimum wage was presumably intended to help these people, it's ironic that it does the opposite. tl;dr The enforcement of a minimum wage causes unemployment and discrimination. It's not helping the economy at all and should immediately be abolished Edit: I wouldn't mind the -reps if there were flaws in my argument, but this post hasn't even been quoted...

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William

11 years ago

Okay, you've asked some good questions, but in order to really answer any in true I would need to explain to you parts of economics in far more detail than I am willing to.

Principles of Economics, by N. Gregory Mankiw

If you really want a clear grasp of economics, of why the formulas like PCI make sense when comparing the wealth of two nations, you should read that book.

Reaperzwei wrote...

I'm curious how do the people in government know whats in high demand?

Statistics that they collect from information and clandestine service agencies along with the mandatory reports that companies within their nation must file.

Reaperzwei wrote...

Also you realize that subsidizing anything is just taking money from someone and giving to whoever the government favors at the time.

The government takes subsidies directly out of it's budget, it ends up being funded with taxes in most nations.

It depends on the market of the state, in a privatized market the government will subsidize a company within an industrial or service sector to promote growth; creating jobs, allowing for more exports, balancing imports and generally improving the economic prosperity of the nation. The company will often have a contractual obligation to fulfill a specific task, in the case of Canada we had a few companies build up the oil industry within the tar sands. In a public sector the government has full control over the way the subsidy will be spent; though like I said previously it's not all black and white, some sectors have varying degrees of privatization.

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