Wednesday, April 24, 2013

Minimum Wage Delusion

"A minimum-wage law is simply a form of price control preventing anyone from selling his labor below a certain price. Whenever a minimum price is established above the natural market exchange rate for labor, some portion of the labor market will not find a buyer/employer. It is a simple supply and demand question; the higher a wage you must give, the more people seek the wage and the less number of higher wage jobs will be offered. A minimum wage inevitably creates a surplus of labor and thus higher unemployment, especially among unskilled workers for which the wage laws are supposed to help. These facts can't seem to overcome delusional wisdom as minimum wage laws have been around for almost 100 years.

The first minimum wage, enacted in Washington D.C., was struck down in 1923 by the Supreme Court, which said the law was unconstitutional because it "restricted the worker's rights to set the price for his own labor." The precursor to the modern minimum wage law began in 1931 with the Davis Bacon Act; which allowed whites to discriminate against blacks in the workplace because it protected the wages of unionized white construction workers from competition with black workers. Stunningly, this remnant of Jim Crow is still on the books. The first federal minimum-wage law, the Fair Labor Standards Act, passed in 1938 under FDR."

As H. L. Mencken observed, “There is always an easy solution to every human problem—neat, plausible, and wrong.” Minimum wage laws score extremely well on all three counts."

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