Suppose a fence can be produced by using either one high skilled worker or by using three low skilled workers. If the wage of high skilled workers is $38 per day, and that of a low skilled worker is $13 per day, the firm employs the high skilled worker because costs would be less and profts higher ($38 versus $39). The high skilled worker would soon recognize that one of the ways to increase his wealth would be to advocate a minimum wage of, say, $20 per day in the fencing industry… After the enactment of the minimum wage laws, the high skilled worker can now demand any wage up to $60 per day … and retain employment. Prior to the enactment of the minimum wage of $20 per day, a demand of $60 per day would have cost the high skilled worker his job. Thus the effect of the minimum wage is to price the high skilled worker’s competition out of the market. [Walter Williams. The State Against Blacks. 1982]
Tag: minimum wage
Today:
Subramaniam said while the Government did not agree on the implementation of a minimum wage for all workers, it recognised that it was necessary to offer decent salaries as the country was losing its skilled employees to its competitors.
”We are losing our skilled workers to Singapore and the Middle East. We may end up losing even more so we must come up with attractive salaries as a way of persuading them to stay on. [Council to look into salaries of electronics, textile sectors. Sim Leoi Leoi. October 7 2008]
Basically, it is an idea to use minimum wages as a tool to retain local talent.
I do not think that it is a good idea. Consider the following scenarios and questions.
If there is free flow of labor as the Minister suggests, then it is far better to let employers and employees to negotiate with each other and decide what levels of wages are the best for both. If the businesses really need the talent, then the employers will offer wages high enough to effectively match wages offered outside of the country. For brevity, let us call this kind of wages as parity wages.
If there is no or little need for the talent, then there will be no parity wages. And when there is no or little need for such talent, would imposition of minimum wages help keep talent local? How does the Minister plan to keep talent local if there is no need or little need for such talent in the first place?
As for businesses based locally but unable to offer parity wages and yet are able to find willing talent, would minimum wages, which increases the cost of factor of production for the business help increase hiring? How would imposition of minimum wages encourage job creation in the country? How would imposition of minimum wages ensure that the businesses do not close down or migrate to somewhere cheaper, and hence, worsen employment opportunites in the country?
One of the tragedies of humanity is that of Sisyphus’. The boulder keeps rolling down the hill each time it has been pushed up.
From time to time, the same issues resurface, rejuvenating familiar debates once held in the past. Two of the issues which of great public concern at the moment, yet again, is minimum wage (no thanks to the Labor Day celebration) and food sovereignty. I have penned my opinion on both issues and in the spirit of recycling, they are:
- [1282] Of questioning the morality of minimum wage
- [1099] Of food sovereignty and comparative advantage
In the first entry, I oppose minimum wage while in the second entry, I appeal for an appeal to comparative advantage and not to food sovereignty.
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.