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Minimum Wage

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Processes do not always generate outcomes that the choosers may have hoped for. Daniel Shapiro notes that "institutions cannot be adequately characterised by their aims". Thus classical liberals have criticised a great deal of intervention into voluntary exchange on the grounds that it does not generate the outcomes promised. Minimum wage laws for example do not raise wages increasing the marginal product of labour raises wages and that is not subject to control by legislative fiat but such laws do increase unemployment and force people out of free markets into black markets, by forbidding those with low marginal value products (typically the low skilled, the uneducated and the young) from offering their services at prices that would command buyers.

What is a minimum wage?


A minimum wage is the minimum (or floor) price set by governments in the market for labour.

Wider definition

  • Does substituting local labour for machines and foreign labour have the same restriction?

Why would governments set a minimum wage?

European Minimum wages(Euros/month).

Problems with the minimum wage

The minimum wage does is not exist

  • You can work for free as an intern
  • You work for free anywhere you like, such as for a charity, yourself or for a friend etc.
  • You can work for your own business without taking a wage

Who can work for what?

Effectively, you can choose to work for free, or the minimum wage or above but not in between.

So what we are really talking about is the wage work band restriction.

The minimum wage is a farce

The only reason wages are as high as they are is that labour has become so much more productive than it used to be. The minimum wage is just the government trying to claim the higher wages as something they have created.

The minimum wage is pointless

In a market where the worker has high economic power (high employment) the worker can just leave for better conditions. Where the worker has low economic power (high unemployment) the worker is usually lucky to have a job at all.

Those in the greatest poverty are not those with low wages, but no wages. The minimum wage can only increase their number.

Benefits from jobs may involve non-pay elements, such as the provision of training, entering a industry, free meals or accommodation. Those who gain from pay increases may lose out in other ways.

Although small, a black-market opens for those who want to work but can't because of the minimum wage and those who want to employ for under the minimum wage. Usually involving illegal immigrants. 

The minimum wage does nothing to guarantee income

The minimum wage has nothing to do with minimum income, as lots of different people work different amounts of hours on the minimum wage. In the end isn't the minimum wage about minimum income.

The minimum wage does not look at an individuals circumstances, it does not take into account the combined income of a household. If one earner in the household is a high earner, then the other should be able to work for less than the minimum wage.

The minimum wage hurts workers

The minimum wage is supposed to stop businesses paying low wages, but there are two sides to every transaction.
  • You can look at it as the architects want, which is it stops businesses employing
  • You can also look at it a policy that stops people working. Doing nothing to help them in its place.

The minimum wage stigmatises people

It makes people feel not valued for their work, as it seems that they are at the bottom. Most workers are valued, at least as much as the value of their wage, and sometimes in other respects.
They are already on a low wage, there's no need to hurt their self esteem as well. 

The minimum wage is unfair and uneconomic

Two staff can work at the same firm, one of the staff might be 50% more efficient than the other, but both might be on the minimum wage.  How is that fair to the more efficient one to subsidise the other worker. This just encourages mediocrity which is something we all pay for.

Small business suffers

The minimum wage is very one-sided and only takes the employees concerns into account. In a transaction, both partys needs need to be addressed.
Small businesses who are on the edge will find it most difficult to survive.
If a wage cannot sustain the worker, the employer will not be able to sustain its workers essentially shooting themselves in the foot. It is their interest to sustain their workers and do not need coaxing.


Labour competes with machinery

The minimum wage makes some labour more expensive. The labour is then replaced by machines.

Cheap labour competes with expensive labour

The minimum wage makes cheap labour more expensive. Where skilled labour can substitute there will be more demand for that.
  • It is effectively discrimination against low skilled workers.
  • It makes the gap between rich and poor larger.
  • It discriminates against young workers

A farmer needs holes made to put fence posts in. The minimum wage is $5/hour
A skilled pole-driver can do 6 holes an hour at a cost of $9/hour
Unskilled labourers can dig 2 holes an hour.
The most the farmer will pay 3 unskilled labourers is $3/hour otherwise it will cost more to employ them than the skilled pole-driver for the same output.
Because of the minimum wage, the three unskilled workers have no work at all.

Domestic labour competes with foreign labour

  • Instead of pushing up wages, it can just ship the jobs off to foreign country's that do not have that wage protection. Just moving the 'problem'.
  • Illegal immigration is related to the minimum wage, illegal workers have no problem working for an illegal amount.

Employees compete with contractors

A way around the minimum wage is to set an employ up as a contractor. As a person in business for oneself, there is no minimum wage.

Employees compete with employees

If the minimum wage is all that can be offered, a older skilled worker will quite often be chosen over a younger inexperience one. Freezing the younger applicant out of their entry level job. Or the reverse in the case of the job being physical.

Costs of firing
  • Redundancy payments
  • Loss of expertise 
  • Reluctance to fire
 are all impediments to firing a person whom the minimum wage is non-affordable. Instead employers may decide to 
reduce hiring rather than sacking existing workers. This makes it very hard to get correct stats on how much the minimum wage effects jobs.

The minimum wage destroys job types

  • Petrol pumpers at stations
  • Ushers at movie theatres
  • Paper plates replace dishwashers (adding to pollution)
  • You probably bag your own groceries now days
This puts more people on benefits.

What moral virtue is there in a policy that causes the loss of jobs for low wage, low skilled workers or which causes the lengthening of unemployment terms.

Its not just jobs that the minimum wage destroys, but the hours offered to workers. Employers reduce hours as each marginal hour will offer less benefits to the employer.

The minimum wage is one size fits all but economies are diverse

  • The minimum wage set by the Government, trumps the minimum wage set by the individual
  • Within a country there may be different levels of poverty, but the minimum wage tends to apply nationally. This has the effect of punishing the poorer areas as work would have gone there if wages were free.
  • It doesn't matter if you are rich, poor, retired, in an area of low employment, the restriction applies to everyone.
  • A functioning market would have lower wages in Liverpool than in Cambridge, which would attract business, and relieve poor unemployed.

Minimum wage is never set at the 'right' level

  • The minimum wage is set in a technocratic way by experts who rely on research
  • The minimum wage may be set at a too low level in some part of the country, and too high in other parts depending on economic performance.
  • Costs like rent vary across the country.

Youth minimum wage

Some countries distinguish between older and younger workers, and allow younger workers to work for a smaller wage than the older workers can. 
There are some positives and negatives of this policy, but in the end, this policy is an admission that the minimum wage causes problems and needs much fixing.
Countries that do not set a youth minimum wage, believe that work should pay the same no matter your age, and youth should not be denied their rightful earnings.
See also apprentice sub-minimum wage

Learning disabled minimum wage

This is not about the right to a minimum wage, it is about the right to have the human dignity that comes with work, and with being included. Those denying some the right to work have no heart.


Gains to those receiving higher pay have to be weighed
against losses of hours or employment to other individuals.

The minimum wage exceeds the governments authority

Government is responsible for making laws. But the government cannot just make any law it likes. Where is the authority explicit that it control an individuals right to work on their own terms.

The minimum wage is anti freedom

If you consider freedom a good thing, then a minimum wage is a bad thing. If you consider freedom a bad thing, then why did you exercise freedom to come to this page, and see if you have the same feeling about freedom after attempting to live without it for a day. 
Unless its only others freedom you are concerned about restricting?

The minimum wages push up prices for everyone (are inflationary)

If a business cannot absorb the costs of the minimum wage, they will attempt to pass it on. 
Price increases tend to hurt the poorest in society as they spend more of their income.

The minimum wage Encourages bad behaviour

  • It encourages avoidance and evasion
  • It encourages dependency
  • It destroys work ethic

The Absurdity of minimum wage

If the minimum wage really worked the following would be a real solution.
"Instead of sending poor countries money shouldn't we be asking them to increase the minimum wage?"

Living Wage

YouTube Video

The problem of the living wage, is it has no relation to the employers ability to pay it. It is set by perceived 'Needs'.
Many people who 'Need' the living wage are actually supported by other family members. (Such as students).


By definition raising the minimum wage creates unemployment. By applying basic economic principles to the labour market one can easily discover that raising the minimum wage will result in greater unemployment.

The supply of labour is based on the principle that the higher a company is willing to pay an individual, the greater the quantity of labour supplied.
The demand of labour is based on the principle that the lower an individual is willing to earn, the greater the quantity of labour demanded.
The supply and demand of labour will meet at a point, which is the market derived wage which corresponds to full employment or the labour market. By implementing a price floor, or minimum wage, the quantity demanded reduces and the quantity supplied increases, resulting in increased unemployment.

Peter Schiff talks about the minimum wage.

Peter Schiff on the minimum wage

  • Passing a law that makes it illegal to work
  • Low skilled workers compete with high skilled workers and capital
  • We eliminate opportunity for young people with minimum wage
  • Labour unions like minimum wage as it keeps their wages high
  • Higher wages come from higher productivity
  • Minimum wage stops the lowest productive(poorest) workers out of a job

Peter Schiff on Minimum wage part 2

Starts 3 minutes in.
When wages go up without an increase in productivity, less workers are employed.
The government can't mandate higher wages, because they can't mandate higher productivity
earning less than minimum wage is an entry level job
If the government can mandate higher wages, why not $50 or $100 an hour.


Good and bad alternatives that can be used in conjunction below
  • Negative income tax
  • Declaring a suggested minimum wage rather than mandating one.
  • Offer training to staff below suggested minimum wage to increase their productivity.

In summary

The minimum wage is not a minimum at all
  • You can work for free
  • You can work over the minimum wage
  • You can work under the minimum wage level if you live in another country
The minimum wage is exclusionary
  • It stops business employing
  • It stops workers being employed
  • It discriminates against low cost workers and low paid industries.
Its bad for workers and poor
  • The minimum wage makes people poorer through inflation
  • Makes workers feel there wage is inadequate
  • It hurts small entrepreneurship
  • It hurts poorer regions as there is no incentive to move work there
  • The poorest are unemployed, not low paid
  • Overrides personal minimum wages
Wages are determined by
  • Economic power of employers and employees (distribution between parties)
  • Productivity of workers and employer ( how much there is to distribute)
Cheap labour is substituted for:
  • Machines
  • Imports
  • Expensive labour
Rights are violated