economics freedom of choice

Victim of the minimum wage

As I was heading to my fathers, I ran into some construction. They had closed off one lane and so we had to take turns using the one remaining lane. Instead of the usual pair of flagmen with radios, they had an automatic gate system set up. One would open up and allow traffic through, then it would close. After a small bit of time, the gate at the other end would open up and repeat the process.

This is the first time I had ever seen this system. It is another example of how labor can be replaced by machines when the price of labor gets too high. I have no proof of this, but I suspect that the new minimum wage laws played a part in these machines becoming affordable. I’m sure there were all sorts of other costs involved too, like insurance, people not showing up on time, people not showing up, etc. but I’m also sure that paying a pair of people to stand around and direct traffic for $7.24 an hour was just a bit much for some employers.

I know that some of you are going to think that $7.24 an hour is too little, so why don’t we raise it to $75 an hour? Oh, that would be too much. So what is a good rate to pay someone that? What is a good rate to accept to do that job? The only honest answer is that we don’t know. I’m sure that there are some high school kids that would rather do that for $5 an hour instead of being unemployed and I’m also sure there are lots of people that wouldn’t bother to do that job at $10 an hour. We don’t know what circumstances people are in and what they are willing to do for any given amount of money. We also don’t know how many more people would be hired if companies could pay less per hour. The only sensible thing to do when unemployment is high is to allow people to accept or reject jobs on their own. No one in DC can set a wage without effects. What effect? Fewer high school kids being employed and fewer flag men. Aren’t we glad that congress is doing what it can for this economy?

2 replies on “Victim of the minimum wage”

You also have to factor in unemployment into your equation as well. A person of our mutual acquaintance named G. was having a very hard time finding a job not only because jobs were scarce but because the few opportunities he did find paid less than his unemployment benefits (which had a long extension thanks to Mr. Obama, by the way). Aside from the personal pride aspect of being employed, where was the incentive to run out and get a job? Perhaps it would be better if salaries on so-called lower end jobs were more “free market”, if you will, but you would need to remove a lot more government intervention to make it work. Just one non-economist’s opinion…

There’s no doubt that unemployment benefits screw things up too. The hell of it is that it isn’t just a matter of making more unemployed. If someone could make more working, they still might not think it’s worth it to get that extra amount for the amount of work they have to do. So unemployment benefits don’t just screw up people looking for jobs at the same salary, it screws them up for people looking for jobs that pay around the same amount… The government’s fingerprints are all over the employment scene.

In any case, the minimum wage laws primarily impact the very group they are supposed to help, the people with little experience and/or low skill sets. Combine that with the bed overall economic scene, and you get a lot of people that can’t get their first job.

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