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Forum Post: Minimum wage causes unemployment

Posted 3 years ago on Nov. 30, 2011, 12:56 p.m. EST by ProAntiState (43)
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Minimum Wage, Maximum Stupidity by Peter Schiff

In a free market, demand is always a function of price: the higher the price, the lower the demand. What may surprise most politicians is that these rules apply equally to both prices and wages. When employers evaluate their labor and capital needs, cost is a primary factor. When the cost of hiring low-skilled workers moves higher, jobs are lost. Despite this, minimum wage hikes, like the one set to take effect later this month, are always seen as an act of governmental benevolence. Nothing could be further from the truth.

When confronted with a clogged drain, most of us will call several plumbers and hire the one who quotes us the lowest price. If all the quotes are too high, most of us will grab some Drano and a wrench, and have at it. Labor markets work the same way. Before bringing on another worker, an employer must be convinced that the added productivity will exceed the added cost (this includes not just wages, but all payroll taxes and other benefits.) So if an unskilled worker is capable of delivering only $6 per hour of increased productivity, such an individual is legally unemployable with a minimum wage of $7.25 per hour.

http://www.lewrockwell.com/schiff/schiff34.1.html

4 Comments

4 Comments


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[-] 2 points by OWSWhat (66) 3 years ago

commando Odumbo = high unemployment idiots

[-] 0 points by KIRKESS (10) from Spokane, WA 3 years ago

This year's Noble Prize Winners does NOT back this argument. Search Friction is HIGH in the US because there is excess labor to the demand of labor. The US is too open, market wise. The end effect is that these so called "Free Trade Agreements" has allowed the US Labor Force to be in competition with a few hundred million more labors from countries such as China and India. The upshot of the Noble Prize Winners' research shows that a monopoly of labor forces the search friction to closely match the aggregate of the supply of labor to the aggregate demand of labor. Hence, the minimum wage becomes an issue because of Free Trade.

There is a caveat to the research: A country's domestic policy can over ride the search friction effect. On the planet Earth, were I live, there are many countries that the US trades with. Hence, many domestic policies. In general, wage depression is showing to be bad due to the HIGH Debt level of Households.

[-] 0 points by hjames (8) 3 years ago

You are right there should not be a minimum wage! but there should be a "MINIMUM LIVING WAGE" enought money to live on, and written into the bill of rights! don't you agree ProAntiState ---------------------

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