Day by Day

Friday, January 26, 2007

Minimum Wage, Two

There's another part about minimum wage that I'm not thrilled about. I've never liked. It's because it's Price Controls.

Wage is the price negotiated and settled upon for one's labor.

When we go to work, we negotiate with the employer the price for which we sell our labor and skills.

For example, a heart surgeon who's particularly talented at the super complicated heart surgeries that preserve people's very lives (and which the vast majority of us do not have the skill to do) is paid an amazing amount of money, because she's worth it.

Some one who applies at the Burger Barn and has a minimal concept of language skills, requires sandals to count to 20, and isn't completely sold on the concept of punctuality would not normally be able to negotiate a high value for his labor. In fact, most employers would like to pay as little as possible for such a product.

Yet, the minimum wage laws artificially inflate the value of that product. Someone's labor which may be, for example, worth maybe $1.50 per hour is bumped up to $5.15 (or higher in some cities). Whom does this really benefit? The seller of the cheap labor who's now earning more than actual product value? The buyer who now must pay more than the value, and thus must also adjust other pay scales as well?

What if this laborer lives in a place where the minimum wage is $9.00 per hour, and then moves to a city where it's $7.00 per hour. What shock will occur when the local business has no intention of paying $9.00 per hour, even though the laborer (falsely) believes that to be the fair market value for his labor and skills?

Price controls stifle the movement of the free market. The reason that people earn the minimum wage is because the product they're offering to employers is not worth a higher price.

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