James Leroy Wilson's blog

Friday, May 13, 2005

Does the Minimum Wage Drive Wages Down?

From the letters page of the Progress Report, this insight from Warren C. of Massachusetts:

The mininum wage is like regulating mercury in fish. By setting a standard, pollution gets legalized. The minimum wage may actually work to keep wages from rising from natural market forces, because a company can say they are paying you those low wages because it is the law.

I wonder, too, if the national minimum wage law (which, by the way, is unconstitutional) is like setting a national poverty line. Because of differing land values, the cost of living varies widely, not just from state to state but also in different sections of the same state. In many places, the national wage is way too low, but it give the employer some leverage: "Hey, I'm paying $1.50 more than minimum wage!" Yeah, but perhaps in a non-distorted market you would be paying $3.50 more.

1 comment:

  1. Ed Anderson12:25 PM PDT

    The minimum wage is a simplistic response to a complex situation. Some sort of indexing needs to occur to address situational economics. Further, the ability of employers to pay workers varies greatly, with some marginally successfull operations forced to pay according to the prevailing wage structure established through societal forces, while many others manage to maximize profits at the expense of a saturated job market. An arbitrary minimum wage, set as a compromise, holds wages down for those who must compete with a minimal skill set or in a saturated job market, and drives wages up for those with marketable or socially advantageous occupations. Certain income streams are outside the effective influence of a minimum wage entirely, so only certain wages are actually in play. The other side of the coin is that wages eventually affect prices, so there is a causal link that is most likely stronger than the simple selection of a minimum wage per se. The minimum wage can be viewed as a benchmark, especially when an employer needs to establish low wages for purposes of negotiation and incentive. Many job-seekers are willing to settle for minimum wage as the bare amount they will accept, without checking for the possibility of a better offer, assuming ( most often correctly) that the existence of the minimum wage creates a de-facto collusion among low-level employers to maintain the bare minimum for legal compensation, regardless of real-world needs the employee is experiencing.