Thursday, February 02, 2006

Minimum Wages = Minimum Opportunities

Recently there has been talk about raising the minimum wage in Kentucky.
Basic economic theory and empirical evidence tells us that increases in the minimum wage leads to increased unemployment (via decreased hours,decreased hiring,consolidation of duties) especially among the low skilled. It also increases the potential of discrimination.

By cutting off the potential for low skilled workers to develop human capital ( ability to follow directions, be on time, communicate with others etc.) these policies condemn many to a life of poverty. In addition they give larger corporations like Wal-Mart a competitive advantage over small proprietors.

The assumption that a third party could arbitrarily determine the value of one's labor is not only arrogant but logically confusing. It makes an assumption of a 'just price' for labor.

In the case of goods, when you pay $15 for a CD you do so because you value the satisfaction that it brings to be worth $15 or more . When the retailer offers to sell you the CD for $15 he believes that the CD is worth at most $15, but probably much less. When two people have completely different valuations for a good, there cannot be ‘one’ price that is just. Increase the exchange to include millions of others, and the problem becomes much more complicated. It therefore seems an impossible feat for a third party to be able to calculate a price that even closely approximates a ‘just price.’

This same logic also applies to the price of labor.

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