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Scrap Minimum Wage Laws
For far too long, we have witnessed government intervene in the market place in the name of helping those who are less fortunate. This involvement has become so heavily politicized that if one were to speak against such intervention they would be blamed for not caring about the less fortunate, regardless of their correct economic knowledge. Government intervention includes price fixing, whether it is artificially maximizing or minimizing a price for a commodity or simply setting minimum wages for hourly wage earners. All of these policies do the exact opposite of what they are intended to do. Bureaucrats do not understand that a wage is in fact a price; therefore the same harmful effects of arbitrarily setting prices of goods will have the same negative impact as setting a minimum wage.
For example, when the government arbitrarily maximizes the price of a commodity, two major problems come about. Let’s say that the government set the price of a gallon of milk was selling at $4 a gallon, government bureaucrats believe the price is too high and set a maximum price of $3 a gallon. The first problem is that now that the price of milk is $3 more people can afford to buy the milk, creating a higher demand and a higher scarcity of milk which will cause the price to increase. The second major problem is that it puts producers out of business. Let’s say that it costs a farmer $3.50 to produce the milk, when it was selling at $4 a gallon they made a .50 cent profit on each gallon. Now that the maximum price is $3, they will now be losing money on each gallon they sell. It will not be long until the producer stops producing milk and will be less prosperous. There will be less milk available in the market.
San Francisco recently joined the club in believing that setting a high minimum wage law creates more prosperity for everybody. The brilliant legislators set the minimum wage to $10.24 an hour, starting in early of 2012. David Frias, a minimum wage earner at a local movie theatre said "I know I'm going to have a little extra money in my wallet. San Francisco is a model for low-wage workers - it's full respect, I guess." Little does he understand that now that all employers in San Francisco must pay such a high wage, the only way to compensate for the high wage is to sell their goods at a higher price. So the wage earner is not any better off now than when he earned a lower wage. This burden is shifted too all consumers, even those who do not earn a “minimum wage.” Now that all prices are higher, the consumer will buy less, hurting almost all businesses.
The proper way to raise wages without government intervention is to allow the free market to operate completely. Allowing businesses to compete with one another is the most pure and productive way of creating the highest wages without effecting prices and forcing producers to pay a wage they can’t afford. Unemployment would drop significantly as those who are unemployed to do unfair minimum wage laws would then voluntarily work for a lesser wage than what was set as the minimum by the government. The key to employment and prosperity is production; therefore it is impossible to create more wealth than what is created by the market. In the same sense that we can’t pay an individual more than their worth of productivity.