Whoopee – Raises for everyone!
So the US minimum wage was increased to $7.25, to the cheers and adulations of the nice, but economically-illiterate, multitudes. Of course, it’s never enough, so there are already calls for further significant increase; for example, a group of churches and religious leaders are calling for an increase to $10 an hour next year.
Look, I’m not a particularly mean guy, and I worked for less than $4 an hour at my first job back in the mid ’80’s — and I sure would have liked to have earned more! But, the thing is, in our still-slightly-market-based economy, wages, like any other prices, are set by the combination of supply and demand for a product; in this case, a particular set of skills, experience, and capabilities.
My first job was as a cashier at a grocery store; it was an entry level job, requiring no experience and no skills beyond the ability to type numbers on a 10-key keypad and smile nicely at the customers. There were lots of other high school kids who wanted — and were equally qualified for — the job, so the price (wage) was low.
At the other end of the scale, let’s think about neurosurgeons, the folks who do simple stuff like cut tumors out of your head, repair aneurysms, that sort of thing. After 4 years of college, 4 years of medical school, an internship, and 5 – 7 years of residency, the small number of people who can actually do this job well can expect to make base salaries of about $400,000 a year; many make total compensation well above half a million.
John Stossel has a good piece on this topic:
Politicians have tried to defy the market process with minimum-wage and living-wage laws for years. The consequences are never good for the people they claim to want to help. When will we learn what workers need is not meddling politicians but free and competitive markets?
While the math of supply and demand can get complicated, the logic is really very simple. If it’s worth it to me to pay the neighborhood kid $30 to mow my lawn, and he’s willing to do it for $20, then we’re going to be able to come to a mutually-beneficial deal. If the town government says passes an ordinance that the minimum price for mowing a lawn is $50, then I’m not going to pay the kid to do it. I’m worse off because I have to waste my Saturday afternoon, and he’s worse off because he doesn’t get to earn money. The townspeople are worse off because they now have an “unemployed” kid running around making trouble and needed some sort of benefits program — leading to increased taxes.
