Guest Post: The Minimum Wage Forces Low-Skill Workers To Compete With Higher-Skill Workers

Tyler Durden's picture

Submitted by George Reisman via the Ludwig von Mises Institute,

The efforts underway by the Service Employees International Union, and its political and media allies, to raise the minimum wage from $7.25 to $15 per hour would, if successful, cause major unemployment among low-skilled workers, who are the supposed beneficiaries of those efforts.

The reason is not only the fact that higher wages serve to raise costs of production and thus prices, which in turn serves to reduce physical sales volume and thus the number of workers needed. There is also another equally, if not more important reason in this case, and it is a reason which is only very inadequately described by reference to the substitution of machinery or automation for the direct labor of workers when wages are increased.

This is the fact that a low wage constitutes a competitive advantage for less-skilled workers that serves to protect them from competition from more-skilled workers. In other words, a wage of $7.25 per hour for fast-food workers serves to protect those workers from competition from workers able to earn $8 to $15 per hour in other lines of work. The workers able to earn these higher wage rates are not interested in seeking employment at the lower wage rates of the fast-food workers.

But if the wage of the fast-food workers, and all other workers presently earning less than $15 per hour, is raised to $15 per hour, then these more capable workers can now earn as much as fast-food workers as they can in any of the occupations in which they had been working up to now.

Moreover, the widespread rise in wage rates to $15 per hour will cause unemployment in all of the occupations affected. The unemployed clerks, telemarketers, factory workers, and whoever, who otherwise would have earned between $8 and $15 per hour, will have no reason not to apply for work in fast food, which will now pay as much as any other occupation that is open to them. And since those workers are more capable, it is overwhelmingly likely that to the extent that they do seek employment as fast-food workers, they will be preferred over the low-skilled workers who presently work in fast-food establishments. Thus, the rise in the wage of the fast-food workers will serve as an invitation to the competition of large numbers of workers who do not presently think of working as fast-food workers and who, being better qualified, will almost certainly take away their jobs.

Between less employment overall in the least-skilled lines of work such as fast food, and the incentive created for vastly increased competition for employment in those lines coming from more qualified workers, the effect could well be to close those lines altogether to the employment of workers at the low end of skill and ability. That, of course, would deprive these people of the opportunity to acquire skills and abilities from work experience that otherwise would have enabled them to become capable of performing more demanding jobs later on.

What the demand for a $15 an hour minimum wage represents is a case of low-skilled workers being led to reach for a high-wage “bird in the bush,” so to speak. Unfortunately, at the high wage, there are both fewer birds in the bush than are presently in hand and most or all of them will fly away into the hands of others, who possess greater skills and abilities, if the attempt is made to reach for them.

This must ultimately be the result even if somehow the present fast-food workers and the like could be enabled to keep their jobs for a time. Even so, practically every time that it became a question of hiring someone new, the new employees would almost certainly be drawn from the ranks of workers of greater skill and ability than those who had customarily been employed in these jobs. Thus, even if not immediately, in time there would simply be no more room in the economic system for workers at or near the bottom of the skills ladder.

No one can question the desirability of being able to earn $15 an hour rather than $7.25 an hour. Still more desirable would be the ability to earn $50 an hour instead of $15 an hour. However, it is necessary to know considerably more than this about economics before attempting to enact sweeping changes in economic policy, changes to be achieved by attempting to organize a mass movement that is based on nothing but a desire for economic improvement and no real knowledge whatever of how actually to achieve it.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
VD's picture

maybe these clueless gov (community organizer grade "business people") should just increase EBT creditz¿¿¿ more honest at least...

DaddyO's picture

How 'bout they just go back to some college think tank...they've done enough damage to us poor community types who didn't want to be organized in the first place.


Clint Liquor's picture

In a Free Market, compensation is generally based on the amount of time (education and experience) it takes to become proficient.

Apparently, this does not apply to 'Sex Workers' where their youth and inexperience can be an asset.

Stuck on Zero's picture

In a free market we hope that pay is commensurate with your productivity i.e. your value-added to your employer.  Honors, awards, certifications, degrees, and licenses are supposed to represent your value.  Now, about those sex workers ...



SmackDaddy's picture

sometimes I see hot girls working fast food.  i think theyd get a way better deal sucking my dick for 30 minutes.  at least thats what i tell them

jbvtme's picture

I read that the average monthly chinese slave's wage, who makes sneakers and t shirts, is $700 per month.  and the average amerikan soda jerk's wage is going to rise to $2400 per month. how is that?

Unpopular Truth's picture

the incentive for college or even finishing high school will also be challenged: if you can make $30k/yr for ANY job, why invest in more - unless it is MUCH MUCH more?

philipat's picture

Not mentioned in the article is the fact that fast food prices would rise substantially, reducing spending in other areas which would also have a direct negative impact on economic activity. Pink sludge is cheap so labour would become a, if not THE, major input cost conponent.

Offthebeach's picture

I can get fairly good frozen food at the supermarket for under $3.
Can't hardly get a pink slime pap smear on a white death flour bun, plus a coffee.

Incubus's picture

"white death."


that's what I call my last girlfriend.

PT's picture

Would you buy a thousand dollar car if it broke tomorrow?  Why doesn't McDs replace their burgers with cardboard?  After all, it's cheaper (and tastes the same!)  There comes a point where something is too cheap and doesn't deserve to exist.  But I digress.

Why does everyone forget that a minimum wage increase goes to customers as well as workers?  How rich do you want your customers to be?

Minimum wage component is smaller than total expenses, therefore a percentage increase in minimum wages is greater than the percentage price inflation.  Google Peter Schiff and his "15 for 15" publicity stunt.  He asserted that a minimum wage rise to $15 per hour, effectively doubling the minimum wage, would cause Walmart prices to inflate by 15%.  Would you really buy less if your wages were doubled but prices only went up by 15%?

But all this is still irrelevant because all excess money, be it "profit" or "extra wages" is being consumed by the price of real estate, be it residential or commercial.  Wages go up?  Residential real estate goes up.  Profits go up?  Commercial real estate goes up, all driven to nonsensical levels by desperate idiots, crony bankers, and the bail-out team.

Oh yeah, double wages and previous debt stays the same, so even if everything - price and wages - doubled, the immediate effect would be proportionately less debt and everyone would still be better off ... until bankers lent more money to idiots and pushed the price of real estate higher again.

In my city, the cheapest house in the cheapest suburb has repayments of approx 100% minimum wage.  20 years ago a good house was 50% of the minimum wage.  How does that affect demand? 

Bro of the Sorrowful Figure's picture

not even close. average salary in Shanghai, most developed city with highest standard of living by far, is around 3000 RMB a month, or $500. so, no. nope. no.

mr. mirbach's picture

Maybe less down votes if you'd said 3 minutes...

Sudden Debt's picture

it will happen.

Have you noticed that when you go to a McDonalds or another greace supplier that there's about 10 people behind the counter?

Untill now there has been no need to increase effiency because of the low labor costs but if you raise the wage X2 they'll increase effiency x2 and there will be a real job loss.

The reason they increase the lowest wages is because it increase the higher wages in the medium term. Do on paper it's good for everybody but it's a inflation creator at the expense of the people and allows the FED to print less dollars.

Popo's picture

Minimum wage increases cause near instantaneous inflation. It's idiotic policy. Has the standard of living doubled since minimum wages were $4? Of course not, In fact the standard of living has declined in many areas. So will doubling wages again work? Of course not.

NihilistZero's picture


Circular argument.  The reason the standard of living has DECREASED is the minimum wage hasn't kept up with inflation.  I'm sure that little fact won't stop this from bring another "bash the working poor thread.  AAll you faux libertarians serve as useful idiots for TPTB as you advocate for policies that WILL be implemented that fuck the working class as hard as you advocate for policies that WILL NEVER be implemented that could fuck the oligarchs.  Total cognitive dissonance.

prains's picture

divided AND conquered is the typical Libertarian, atomized and individualized to ineffectual certainty


There's NOTHING wrong with the wage. It's the economic environment in which that wage earner has to survive that's the REAL problem. 

mjk0259's picture

Right. In real terms the minum wage has gone down 50%. The standard of living hasn't doubled and the real price of fast food hasn't gone down 50% either.

They make most of the profit on soda which cost almost zero then and now relative to it's price.


MontgomeryScott's picture


You are totally incorrect. You base your assumptions on a flawed model of the banksters and their controlled economy that you seem to think is 'reality'.

INFLATION is a relatively new term, used to describe (NO, NOT the 'increase in prices of goods and services') the increase in the 'money supply' (THIS is the correct definition, despite your flawed assertions and presumtions). It is tied directly to other terms, like 'tax rates' (as in, the incremental tax rates imposed by banker-run governments in order to incrementally take wages from the masses in order to impoverish a once-free people).

IF the so-called MANDATED 'minimum wage' increases once again in the CONUS, it will SIMPLY serve the needs of the oligarchy that controls the OTHER side of the equation (the I.R.S.). IF one who 'earns' 11,800 FEDSCRIPS suddenly finds themself in the arena of 26,000 FEDs, their so-called 'tax obligation' will go up by commensurate amounts (from, say, ZERO, to, what, 11%?). These people will THINK they are getting a 'better deal', until the tax-man cometh...

Why do you assume that 'libertarians' are STUPID?

Arnold's picture

I will add simply, a devalued dollar.

Oh, to be handing out dimes , when they were worth a movie ticket.

couvrot's picture

Why don't you go to Wikipedia and check what it the definition of of inflation!

DaddyO's picture

Wikipedia? Really?


Tom G's picture

It is "faux libertarian" to be against the minimum wage?

The true libertarian position is to support the government mandated wage floor?

Libertarians supporting coercive mandates from the state?

Next you'll tell me Obamacare is the real libertarian position, and less regulation in the healthcare industry the "faux libertarian" position.

Frightening trend in the libertarian community, as this isn't the first time I've seen it. I do not want government interference for the wealthy, for the poor, for minimum wage, or for Wall Street bailouts.

I am against state mandates backed up by the implicit threat of violence. I follow the non-Aggression principle, which applies equally to the minimum wage and handing $100 billion to AIG.

prains's picture

where most Libertarians get confused is in thinking the "State" and the Corporation are two different entities serving different purposes, the former enacting legislation and the latter exacting maximum profit around/thru/over said legislation. The confusing part is the "State" is fully compliant to the Corporations wishes and uses the State to it own ends with NO regard to you or any other individual who represents the "Labor" part of their equation.

Tom G's picture

They are different entities serving different purposes.

There are exceptions, of course, such as corporations in the military-industrial-complex, and wall street is brimming with firms that are in bed with the state.

But are you telling me that Starbucks or Apple or Caterpillar or Delta Airlines or Whole Foods or Mossberg or Mountain House are not "different entities serving different purposes?"

Because those entities provide me with goods and services that I enjoy. Are they perfect? No, some less than others. But they are a far cry from the state. So yes. They are "different entities".

prains's picture

enjoying or even using their goods and services is not the point, you are only representing the consumption side of the equation so you've missed the point. This is a labor/capital equation and the arbitrage effect the corporation has used to lower labor cost in the nSSA has been done through their TOOL the .Gov. This isn't done in plain sight over a weekend but has been done over a generational timeline, hence so many can't see it happening or get confused by the divede conquer paradigm used so effectively to divert attention away from the REAL issues. Death by a thousand cuts....

NihilistZero's picture

prains, may I humbly submit you are my brother in arms for this thread :-)

prains's picture

what amazes me NZ is most if not all of us on this site/thread are the labor part of the Corporate equation yet sooo many fall for their divide conquer rhetoric and as you pointed out, the Libertarian is prime suspect number one

NihilistZero's picture

I may start calling them Martyr Libertarians, willing to throw themselves on the sacrificial fire of the free market while the kleptocracy continues to use the power of. gov to enrich itself.  But working people shouldn't, because, you know,  principles and stuff...  How Christ like of them.   Aso and Atheist I've never been big on turning the other cheek.  May we one day return to "Classical Liberalism" and retake the wealth the oligarchs have stolen from us.  Perhaps by then a few of our libertarian brothers here will have awoken...

Tom G's picture

So you are saying that the kleptocracy is enriching itself through the power of .gov, and the only 'real' libertarian way to combat this is by advocating economically ignorant policies that artificially inflates the prices of certain things effectively ensuring a lower level of employment?

The real libertarian position to fight the power of .gov and the kleptocracy is to use the power of .gov to force the business owner to pay more for low skilled labor than it would otherwise be worth to them.

Of course. That must be right, Mr. Hayek. My mistake.

Tom G's picture

You are saying that the Corporation is no different from the state.

You are saying it is a mistake to confuse them as two different entities.

Now you are changing the argument, and telling me that I've missed the point.

I didn't miss the point. Whole Foods is different from the state. If you disagree with that, then say so, but recognize that if you don't believe that Whole Foods is different from, say, the IRS, then you are contradicting your previous point that there is no difference between those two entities.

One can incarcerate you for hitting a bong. The other has tasty food that it will sell you if you want it. Bam. Different entities.

prains's picture

you miss the point entirely over and over again.......Corporate America is benefitting from its ability to manufacture a labor arbitrage with cheaper labor pools in unregulated markets by global agreements your .gov promotes. You keep talking about domestic labor markets ONLY which operate in their own little vacuum of a local econnomy. Their local labor pool is stressed by a lack of job opportunities due to these international agreements which enables them to drive down their local cost of labor because so many are desparate to work...


how do you NOT undesrtand any of this???? 

Tom G's picture

How do you know I don't understand it?

This is the first time you've said it.

Before you were talking about how the CIA and Whole Foods are the same entity with the same purpose.

That's what I was replying to.

You can't completely change the subject and expect me to predict what you really wanted to talk about in previous posts, can you?

prains's picture

please point out where I said anything about any particular govt AGENCY, you used those words not me. .Gov is an anacronym for an agenda NOT an agency. These are global concepts you seem to struggle with.......

Tom G's picture

Here's what you said:

"...where most Libertarians get confused is in thinking the "State" and the Corporation are two different entities serving different purposes..."

So tell me, which part of the state is just like Whole Foods, providing me with delicious snacks and meals if I choose to pay for them?

I'll stop making assumptions and let you fill me in.

You're the one who's lumping all entities into a singular scary "Corporation", like a Bolshevik.

NihilistZero's picture

I'm letting it go for this thread prains.  When I read these guys parroting talking points like "flipping a burger shouldn't provide a living wage" my faith in people. is shaken.  Fry cooks had a living wage until about 30 years ago when workers purchasing power, voice,  everything else was dismantled.  These guys don't even think to question WHY a fry cooks shouldn't make a living wage?  .gov enforcing that would be a tragedy, but spending billions to protect. .corp copyrights,  trade monopolies, RE, etc is okay. .gov and .corp wiped their asses with the social contract and these guys want more.  If. gov doesn't protect my security or ability to eat and have shelter while protecting .corp wealth, what fucking good is it?  AAs another poster is fond to say "Roll the guillotines "

prains's picture

you can hit guys like Tom with a 2x4 of reality and they just go zombie, headshots don't even work... with you.....OUT


the Bolshevik part is a nice paid troll touch, keep fondling you own balls Tom......

Tom G's picture

Your weak "fondle your own balls" line sort of contradicts your troll accusation, no?

Watch out for THE CORPORATION, prains! Whole Foods is going to incarcerate you with its evil bakery section!

prains's picture

you'll be fondling mine soon enough young troll


>>insert evil laugh here<<

Tom G's picture

Seriously? That is something you said?


Blech. Is that something you want me to do?

Or that you dream about forcing me to do?


Tom G's picture

"These guys don't even think to question WHY a fry cooks shouldn't make a living wage?"

Because a 14 year old can do it.

I hate the entire concept of a "living wage".

If my neighbor's 8 year old kid asks if he can shovel my driveway, should I pay him a "living wage"?

Should he be able to live on it? Pay rent? Buy groceries?

You're a leftist, seeking government action to implement your misguided notion of justice with economically ignorant 'solutions'.

NihilistZero's picture

And you're a fascist dumb ass.  Here's one for you in the absence of. gov 14 year old who can sustain himself and others with food gets a living wage through honest trade.  in the presence of  .gov he doesn't  So it seems you like government giving "justice" to the oligarch class through monopoly of use of force.  Fuck .gov but if they can restore to the laborer which they took in the first place I'm all for it.  Do you have the balls to live in Anarchy where. gov doesn't protect your shot and we have a REAL free market?  If not you aren't very libertarian and if so you wouldn't be making such a stupid fucking argument.

Tom G's picture

"And you're a fascist dumb ass. Here's one for you in the absence of. gov 14 year old who can sustain himself and others with food gets a living wage through honest trade."

Always? No matter what? If somebody "honestly" trades with another their labor for some wage, it is always worth a "living wage"?

You say these things with such certainty, as if somebody's labor, no matter how effective or how productive, is worth some minimum amount. As if there's intrinsic value to labor, regardless of what form that labor takes.

That's not the case. Value is subjective. If you wanted me to hire you as an assistant to help me think of economic ideas to ponder, I would pay your $0.07/day. That's how valuable your ideas are to me.

But in your mind, because I'm hiring you at all, it means I need to pay you a "living wage".

But it's not worth it to me. So if you tell me that it's $15.00/hr or nothing, I'll give you nothing.

Understand this, and you are well on your way to understanding the most basic principles of economics! Congratulations!

TimmyB's picture

I loathe how some people turn a blind eye to the simple fact that the control of this country's government is decided by a contest where the winner is the person who collects the most money from the people who own this country.

Sure, in a technical sense corporations and the government are separate entities same as United Fruit and the U.S. Marine Corps were separate entities. However, it still doesn't change the fact that the Marines invaded Guatemala at the request of United Fruit to end land reforms.

StychoKiller's picture

Hmm, ask yerself:  "WHY does the public education system produce workers with so little value in the workplace?"

Newsflash, NOT everyone can be a rocket surgeon, nor will they have any leverage to get paid as much!

NihilistZero's picture

What is "faux libertarian" is supporting policies that enslave man.  There is no "liberty" that has come from the supposed "free market reforms of the last 30 years.  Yet many libertarians support policies that enable the corporatocracy and cut the throat of his fellow man.  IIf you want a really free market I'd gladly join you in an anarchist trade based society tomorrow.   In absence of that beautiful dream the best way to work with what we have is NOT to force our fellow man into an inescapable position of debt servitude.  Things being what they are I find it easy to support government action to help the proles despite disagreeing in principle.  The only alternative is a corporate dystopia worse than what we have now.  RRaide the minimum wage to $15 via an extension/prebate of the earned income credit.  Pay for it by taxing Capital gains over 500K at a significantly higher rate + tariffs on Chicom imports.  Tell me how this doesn't help THE VAST MAJORITY of Americans?

Tom G's picture

Why $15?

Why not $150/hr?

Then you'd really be helping the people! Like a solid, hard core libertarian!

Minimum wage is for people who have zero understanding of economics.

What happens if you artificially raise the price of nearly any good or service, including labor?

Raising the minimum wage to $15 will have little to no affect on the majority of the US.

It will have a net positive affect on some of the working poor.

It will have a net negative affect on many of the working poor who will lose their job.

We are in the early stages of machines making fast food. This trend will accelerate if minimum wage is doubled.

NihilistZero's picture

Because $150 would  break the system.  $15 would merely restore lost purchasing power to the proles and would help alleviate the rampant OVERCAPACITY OF EVERYTHING facing our economy.  WWe have more malls, houses,  cars,  etc than we need and the only way to solve that sickens is an increase in consumption by the working class.  So are you being willfully ignorant or flippant?

Tom G's picture

I simply don't believe you that "MOAR CONSUMPTION" is the only solution for this sickness.

People need to give DC the finger and begin living much more simply. Check out of the system, rather than finding ways for them to buy more gadgets and bullshit. Rely upon each other, work within their communities to solve their own problems, not demanding that the f***ing corner store owner and the pizza place have to pay their zitty 18 year old employees $15/hour.

That solves absolutely nothing, and creates new problems.

(And what about $25? Would that "break the system"? Can you show the math on how $15 is the perfect amount?)

StychoKiller's picture

$15/hr is a SWAG ("scientific", wild-ass guess!)

Your question only proves that minimum-wage advocates do NOT understand the economic principles they're demanding that everyone violate.