AUSTRIAN ECONOMICS ADDICT

Economic theory suggests an excessive minimum wage may raise unemployment as it fixes a price above demand for labour, although a reasonable minimum wage enhances growth because when poorer workers have more to spend it stimulates effective aggregate demand for goods and services. (Photo credit: Wikipedia) Read about what is in bold print below.

MINIMUM WAGE RHETORIC

In the State of the Union address, the President called for the minimum wage to be raised to $9 an hour. Politicians who propose minimum wage laws are trying to gain the moral high ground on the “morally inferior” people who oppose these laws, they are not trying to help low wage low skill workers. These politicians think that making a law mandating employers pay their employees higher wages, will fool the public into thinking they are morally superior to their opponents. They prey on the emotion of the public and hope the public will not analyse what happens when wages are set higher than they would be under unhampered market conditions. Unfortunately the consequences of the legislation turn out to be different from the utopian promises that the public, and the media, so desperately want to believe can be delivered.

MINIMUM WAGE REALITY

Labor is supplied on the market like any other good, but the public has been brainwashed by Marxist propaganda to believe that an individuals labor is special, and should not be subject to the morally neutral forces of supply and demand. The law of supply and demand says; less will be demanded at a higher price than a lower price. When you raise the cost of labor, businesses will employ less labor, it’s that simple, you don’t have to prove this with data, this law is always true. You may not know the degree of the unemployment caused by raising the cost of labor, but individuals will become unemployed. Some might say that the employer can pass the cost on to the consumer, but this is not the case. If employers could cover costs by simply raising prices, no business would ever go under. Business men take a risk that the price they can charge for the finished product, will cover the cost of production( interest and profit included). If they are wrong, they have to either cut costs, or go out of business. In reality the consumer determines what the wage will be in all stages of production. So if you want to blame someone for wages being too low, blame the “greedy” consumer, who wants to buy at the lowest possible price, not the “greedy” employer.  When the morally superior legally raise the cost of the employee above the value he produces, (this value being determined by the consumer), he will no longer be employed. Put another way, when you artificially raise the salary of an employee, and what he produces can’t be sold for enough to cover the cost of the higher salary, he will become unemployed.  No employer in his right mind will pay a worker more than the value he produces. Minimum wage laws can’t work as advertised as long as a free market exists. The only place where setting wages arbitrarily outside of the market process has any chance of working, is in a centrally planned economy. We’ve witnessed what happened in communist Russia, and we are witnessing what is happening in socialist Europe, so let’s not be fooled into thinking that the only reason these ideas haven’t worked is because “morally superior” people haven’t tried them yet.

Read the statement in bold print under the graph above. This is Keynesian language that is accepted as a part of the mainstream. This phrase, “spending stimulates effective aggregate demand”, is what we are bombarded with by our politicians, the media, and the intelligentsia. Keynesian and Marxist fallacies so permeate our society, they are accepted as true and are never challenged by politicians, the media, or the intelligentsia. We must start taking a stand against these false ideas, the cost of remaining silent is too high.

Watch this video of  Dr. Robert P. Murphy talking about the minimum wage.

For more in-depth analysis read this article, “Outlawing Jobs: The Minimum Wage”, by Murray N. Rothbard at mises.org

Also read, “This Bread Is Mine”, by Robert LeFevre at mises.org.

This entry was posted on February 25, 2013 at 3:58 am and is filed under Econ. 101. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: Employment, Keynesianism, Marxism, Minimum wage, Minimum wage law, Supply and demand, Unemployment