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“Minimum Wage Madness” by Thomas Sowell

By Thomas Sowell

Political crusades for raising the minimum wage are back again. Advocates of minimum wage laws often give themselves credit for being more “compassionate” towards “the poor.” But they seldom bother to check what are the actual consequences of such laws.

One of the simplest and most fundamental economic principles is that people tend to buy more when the price is lower and less when the price is higher. Yet advocates of minimum wage laws seem to think that the government can raise the price of labor without reducing the amount of labor that will be hired.

When you turn from economic principles to hard facts, the case against minimum wage laws is even stronger. Countries with minimum wage laws almost invariably have higher rates of unemployment than countries without minimum wage laws…

… Unemployed young people lose not only the pay they could have earned but, at least equally important, the work experience that would enable them to earn higher rates of pay later on.

Minorities, like young people, can also be priced out of jobs. In the United States, the last year in which the black unemployment rate was lower than the white unemployment rate — 1930 — was also the last year when there was no federal minimum wage law. Inflation in the 1940s raised the pay of even unskilled workers above the minimum wage set in 1938. Economically, it was the same as if there were no minimum wage law by the late 1940s.

In 1948 the unemployment rate of black 16-year-old and 17-year-old males was 9.4 percent. This was a fraction of what it would become in even the most prosperous years from 1958 on, as the minimum wage was raised repeatedly to keep up with inflation.

Some “compassion” for “the poor”!

Read the Rest @ Minimum Wage Madness – Thomas Sowell – Page full.

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One Comment Post a comment
  1. Sorry Tom. This theory has been proven false. Try again.

    This letter is going out to every member of Congress, the President of the United States and several newspapers.
    I would like to offer a solution to the problem of minimum wage. There are two opposite and opposing sides to this issue and I believe that both sides are raising issues that have merit. I do not believe that it is necessary for one side to win and for the other side to lose. I think that there is a win/win scenario available in which the Left and the Right can claim victory, but more importantly, so can the American worker and thus the American economy as well.
    Democrats want to raise minimum wage. Republicans insist that this will hurt small business. No one is saying that it will hurt Big business. Thus the problem we are looking at is how to put more money into the hands of workers, so they earn enough money that they do not require public assistance while at the same time insuring that small businesses are not forced to lay off workers or cut hours. Obviously a big business would merely raise their prices and absorb the cost of paying employees more money.
    Consider an alternative to the traditional, flat, across the board, minimum wage increase: Some of the most successful companies in the world have a thing called “Profit Sharing”. When employees are partial owners of the company, they are more likely to be productive. They have a stake in the company’s success, thus the company benefits from their participation of not only helping to create the company’s wealth, but participating in reaping the rewards of the company’s success.

    Why should Democrats support this? Because mandating profit sharing would put more money into the hands of the workers. A cap would be placed on the percentage of profit going to the highest paid employee or CEO of the company and those on the bottom of the “food chain” would see an increase. (This would not affect small businesses which fall short of a required amount of profit to qualify for mandated profit sharing.)

    Criticism of this plan: It will encourage small business to stay small. Answer: Any business that would choose to remain small to keep from paying their employees more is doomed to failure. The desire of any businessman or entrepreneur is to be successful and grow their business. The more the company makes, the more the guy on the top will make. That is simple capitalism. Mandated profit sharing only assures that the people participating in the success of that company do not become the responsibility of the rest of the working public while a handful at top enjoy lifestyles that are subsidized by the tax dollars supporting their employees.

    Why should Republicans support this? The more that the average worker is able to earn, the less he is dependent on government. It will shrink the number of people on public assistance.

    Criticism: We don’t want more regulations on businesses. Answer: Most regulations require a business to pay (the government) for permits and require jumping through a jungle of hoops to comply with government regulations. Just as we recognize the need of government (we do not advocate anarchy) we must also recognize the need for some regulations. (Unless you would want an unregulated insecticide manufacturing plant opening upstream from your drinking water). This particular regulation would require a minimum of government oversight, with the company’s internal payroll and accounting taking care of the details.

    What about the people who work for companies that do not make enough money to qualify for mandatory profit sharing? No plan is perfect, but as more people on the bottom have more money to spend, we can expect those smaller businesses to begin to fare better and thus have a greater opportunity for success and a greater opportunity for those workers to help build up their small companies.

    I understand there are a lot of details to be worked out with this plan: How much profit should a company be making before it can be required to profit share? How is that number effected by the number of employees? What should be the percentage distribution from the top to the bottom? Can we base our model on any existing models of companies that offer profit sharing voluntarily or models that have existed in the past? Can we adapt some variation of this idea with a flat rate increase or some other proposed solution to develop a more perfect or workable solution?

    I leave those details to be worked out by our esteemed public servants.

    In closing, the disparity of income must be addressed or we will repeat a cycle of history that does not lead to a good end. A nation with a growing aristocracy that is vastly outnumbered by a poverty class is a dangerous and volatile situation. It is my sincere desire that opposing parties can put aside their ideological differences long enough to come together and make the positive

    04/15/2014

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