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Is the minimum wage the most misunderstood concept in all of economics? – Press Enterprise

One of the basic misconceptions is that we cannot distinguish between private companies that raise paid wages and laws that force everyone to do the same.

Unfortunately, this rookie’s mistake was made by the New York Times, which appears to be the newspaper of record. I recently exploded this headline. “When Amazon raises the minimum wage, local businesses follow suit. According to a new study, when large companies raise wages, they raise wages where they do business, but they lose a lot of work. there is no.”

Perhaps a summary of some of the high points of Economics 101 will put the problem into view.

It’s really great that this happens. Of course, even if LeBron James raises his salary, the unemployment rate will not rise. Who said The same is true when tech companies such as Microsoft, IBM, and Apple do so. However, this also applies to employers of less skilled employees such as Amazon, Target, and Walmart.

Why do any of them raise wages? In a nutshell, productivity has improved. Wages tend to be equal to productivity, as freshmen learn from an introduction to microeconomics. They cannot go far off the line before market forces tend to equate them. For example, suppose a worker with a discount marginal revenue productivity of $ 30 per hour is paid $ 20. Some other companies will soon bid $ 21 for his service, and an additional $ 22. Do you know where this is going?

Just as nature hates vacuum, the economic system does so in terms of profits. If they are there, some entrepreneurs will try to catch them by raising the bid for this low-wage worker in this case. Now suppose that this person with a productivity of $ 30 is paid $ 50. The names of the companies that do this are: Bankruptcy (assuming no bailout, strictly redundant in a free economy). So when a 30-hour man increases his productivity to $ 35, his rewards tend to follow this path. There is no mystery here.

When a foreign plumber who earns $ 5 an hour in his country of origin comes to the United States, he quickly finds a job that pays as much as a multiple of an American wrench-wielder. Why does his productivity increase so much? This is because employees in this country use far more better capital equipment. And why and why? More financial freedom to promote savings and investment.

The minimum wage is a horse of a completely different color. Here, coercion boosts that ugly head. This enactment is not part of the free corporate system. That is the denial of it. Suppose your employer is forced to pay $ 50 to our $ 30 man per hour. It will spell the end of this man’s work outlook. The same is true for those who have a productivity of $ 5 per hour, there are such people! , Under the current minimum wage of $ 7.25. He is unlikely to escape unemployment.

All elevators were manually operated when the minimum wage was raised from $ .40 to $ .75. Did any of these workers lose their jobs the next day? of course not. It will take time to replace them with automation that has become competitive with high wages, even though it was not low wages.

According to The New York Times, “Amazon embarked on an advertising blitz this winter and called on Congress to follow the company’s initiative to raise the federal minimum wage to $ 15 per hour. The company said in a recent blog post that the United States. “We can’t just wait for the high salary,” said the workers.

Why is this company not happy with its little effort to raise wages? Why do you want to force others to emulate them? simple. It competes with these others and if they do not follow this possible garden path, it will lose them market share.

The phenomenon here is the same as the hotel industry’s attitude towards AirBnB. Or from the taxi industry to Lyft and Uber. The dairy states were at the forefront of not allowing margarine to be colored yellow. But the newspaper of record completely misses this.

Another “jewel” in this article is: “… What happened after these companies raised entry-level wages in recent years in a community run by Amazon, Target, or Walmart? What (researchers) have discovered in many ways is traditional. It disrupts the economic model. Raising wages did not put large companies at a disadvantage. Instead, it gave local workers a reason to demand a salary increase from their own employers. “

Again, this is confusing two very different things: voluntary pay raises and forced pay raises.

There is no “traditional economic model” that says less than a million miles from a voluntary increase in salaries that creates unemployment.

In contrast, virtually every introductory textbook on microeconomics (I’m not aware of a single exception) says that the basic supply-demand analysis that enforces the coercion has exactly that effect. Shows: Labor surplus, eg unemployment.

Walter E. Brock is the chair of a prominent scholarly donation by Harold E. Worth and a professor of economics at Loyola University in New Orleans. He is a liberal and a supporter of the Austrian School.

Is the minimum wage the most misunderstood concept in all of economics? – Press Enterprise Source link Is the minimum wage the most misunderstood concept in all of economics? – Press Enterprise

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