I had supper with two friends not too long ago. The gamut of our conversation topics ran wide but I have no doubt that the crux was on morality of free market and minimum wage policy in particular. A friend expressed how such philosophy fails to provide warmth to the struggling people whom work day and night to provide for themselves and perhaps, others. He pointed to the opposition to minimum wage and how free market supporters are insensitive to the hardship the needy face as proof. He presented his point so passionately that it pained me to disagree with him. Yet, I must disagree and went on to illustrate how such insensitivity within a larger picture is really a morally superior and caring position to take.
Scarcity is a real issue and minimum wage supporters unfortunately do not grasp the idea well. If scarcity is a tale belonging to the lands of the fairies, then we would be living in the land of the fairies. Sadly, this is the real world with harsh reality of constraints. Within the issue of minimum wage, the policy imposes more constraints than necessary on the economy, turning a harsh world even harsher from a big picture.
Perhaps I am stating the obvious but minimum wage policy increases wages of the already employed. Of course, the employed have to have wages below the floor if they are to benefit from the policy. Here, the key word is employed. The policy benefits limited fraction within the society and like many other things, it is fueled by self-interest when it is fought by those that tend to benefit from it. Or to put it more bluntly, plain old greed. Those that support such policy because they think it is a compassionate thing to do however simply fail to understand the economics behind the policy, or seems to limit their consideration to limited section of the society.
The story of minimum wage does not end where supporters of such policy would like it to be. When one is playing a game of domino, one really has to be careful on which pieces one would like to touch.
Once the employed, at least the ones that riped the fruits, received their pay hike, of course they would be happy. The same cannot be said for business owners and unemployed others. And trust me, most of business owners are not multimillionaires; a majority of them are simply trying to make a living too. Higher salaries increase cost for the affected employers. Money does not grow on trees and so, with greater wages to be paid, employers cannot afford to hire more people.
Please do not get me wrong. It is not always wrong to pay individuals with high wages. If a person is capable, the person deserves every one bit of it. It is productivity that determines wages. A policy that pays somebody extra for something trivial, something that too many people could do better or cheaper than him is a bad policy and this most of the times includes minimum wage policy.
And where does this lead?
One of the direct results is the less employment opportunities. The impoverished that require jobs are denied of opportunities because of a policy that benefits a certain section of the society at the expense of another group.[1]
For those those that believe opposition to minimum wage is governed by cold rationale, do kindly explain to me this: what about the unemployed? Are the unemployed expendable?
How does opposition to minimum is colder than a policy that robs many from employment opportunities while the beneficiaries of the policy enjoy higher wages that do not reflect productivity?
Where is the morality of minimum wages when it keeps the improvised from gaining employment? Where is the morality of such policy when it denies decent people from employment opportunities?
For those that fight for minimum wages and stand to benefit from it, this is where selfishness, instead of sharing the bench with supporters of free market, is the minimum wages proponents’ best friend.
[1] Note — minimum wage policy may increase employment under specific conditions but we usually face the typical model where minimum wage imposed above equilibrium leads to increased unemployment. Under a monopsony model, I would to a certain extent support minimum wage to correct imperfection in the market.
6 replies on “[1282] Of questioning the morality of minimum wage”
[…] [1282] Of questioning the morality of minimum wage […]
Dear Syed,
I do not feel as such. It is economics that feels as such.
For empirical analysis, you might be interested in a literature entitled Minimum Wages and Employment @ http://www.nber.org/papers/w12663
For theories, there are undergraduate economics as well as advanced economics textbooks that mention the same thing. Macroeconomics by Mankiw and Labor Economics by Borjas are two of many respected publications that you may read.
After reading those publications, you would have a rough picture on how the labor market works.
I’m am not an economist nor do I fully comprehend the fully the complexities of the free market.
Despite your resoned and inteligent responses I’m afraid i just can’t agree to your objectiion to a minimum wage. Through your post you seem to feel that a minimum wage would deny employment opportunities to others because that would mean people would hire less people to do more work just to keep cost down.
Do you have any data or some sort reference to support this assertion. Though your assertion, does have a logic to it, I feel a minimum wage policy coupled with a tax incentive scheme by the employets would be benificial to the economy.
1. Increased wages would mean there would more people with disposable income. This would translate to increased consumer spending wich will benefit the retail sector in particular.
2. Minimum wages could translate in increased productivity from workers, knowing that they have a sustainable income.
I also feel (though this is strictly anecdotal) going by how some of the corporate fat cats in malaysia live (I’m a freelance photographer who covers events and some of them are obscenely lavish) and play, I’m pretty sure the corporations that these guys head could afford the increased wage bill.
The parallel that you draw between having more people employed at low wages or less people employed at higher wages, I find rather distasteful I’m afraid. Everybody has a right to a sustainable income and I feel governments have key role to play in ensuring this through regulation (throught acts, and regulations) and incentive (tax exemptions etc…) to the employers.
There has to be away where all sectors of society can enjoy the wealth that our country is generating and not just enjoyed by a privileged, unprincipled few.
Dear moo_T,
So, you are saying, minimum wage is a tool to increase cost and thus, force companies to invest in R&D and then, better productivity?
And you cannot take environmental regulations and equate it with minimum wage. Environmental regulations are aimed to internalized externalities. Minimum wage does nothing of that in most cases.
On cost to the society, would unemployment be of less cost compared to low wages?
Finally, talking about necessary evil, why do evil when we could do pure good? And really, open market (I assume that to be free market given the context) is not free anymore when we have things like minimum wage.
IMHO, minimum wage is a necessary “evil” for open market. It is similar to the environment regulation to ensure our environment are habitable for next generation.
The reason are pretty obvious : there is not limit to human greed. Under constraint environment, human will either find loop hole or work extra hard to maximize efficiency to increase productivity.
Let’s take example of environmental regulation in Europe. Many company complain the regulation will increase cost. However, after incentive of R&D take place, most company are able to save more money with increase productivity. For example, the paper mill using the new technology, are able to reduce water usage and wastage.
Back to the wages problem. I think Malaysia are infested by cheap blue collar(agriculture, construction) labor mindset. There is huge hidden cost(diseases,living standard, transportation,crime rates, etc) to be bared by society. When the related field complain about rising labor cost, there is little voice from mainstream media to counter them : the hidden cost that never mentioned.
A good example is usage of crane in construction. After the “shortage” of construction worker few years ago, more construction company willing to use the heavy machinery to speed up the work than hire many cheap worker. In fact, it does help Malaysia company with idle crane after 97 crisis.
With a good planing, the government can indeed speed up the process with incentive. However, due to our country half-baked mindset, the private sector must think out of hand before our bureaucrat think of any incentive.
This post reminded me of a debate Rajan and I had with Sigma some months back:
http://sigma.blogsome.com/2007/02/22/a-challenge-to-neoliberals-on-its -economic-model/