Friday, May 25, 2007

Minimum Wage

One good thing to come out of Congress’s surrender to the president on Iraq funding was a long overdue increase in the minimum wage. I was disgusted that Republicans were willing to suffer one of their pet peeves to support a failed strategy (and more death) in Iraq.

It is fascinating that the concept of a minimum wage is so fundamentally repugnant to conservatives. I see it as a variant of the “no one should get anything for free” philosophy that comes from a value system based on the objectifying of people (what I have elsewhere argued is the cause of most evil in the world).

From a purely economic viewpoint, it makes good sense to let “the market” decide the fair value of a person’s labor. Long (and falsely) considered the only thing of true value, labor thus has the best chance of being efficiently allocated to provide the products and services that people want and need. If the pay is less to do one kind of work, people will train themselves to do something else that pays more and has more value to the economy. In a well-functioning market, underpaying jobs would disappear, and no one would miss them.

Unfortunately, the underpaying jobs still exist, and keep being created. The reason why is based on human nature (people want something for nothing) and the complexity of the economic system (peripheral jobs are unintended consequences of demanding products and services that weren’t adequately planned for, along with their interdependencies). When a price is set, the market tends to react unfavorably when it is increased, even if justified, and so the producer must cheat to maintain the expected price and profit. Because of the distortion, the inefficiencies have a ripple effect: other producers are inclined to cheat just to be competitive, and eventually someone else (or some other species, providing services considered by the market to be free) has to pay. Meanwhile, the people who were brought in to perform the peripheral jobs must settle for lower wages, and are hamstrung if the required skills are not transferable to other work; this has a particularly crushing effect since most people depend on their jobs for survival.

A minimum wage raises the prices of products and services dependent on low-priced labor, with two significant effects. The most obvious of these is that workers performing peripheral jobs have a better chance of survival and perhaps even expanding their skill sets. Less obvious but perhaps as important, producers have a harder time hiding the costs of their products and services from the market, increasing the chances that they will no longer be rewarded for bad planning or cheating. Initially, workers who depended on the peripheral jobs may become unemployed; but a healthier system, in the long term, will benefit everyone.

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