Minimum Wage Mendacity

Tyler Durden's picture

Submitted by Gary Galles via The Circle Bastiat Mises Economic blog,

With President Obama’s State of the Union Address and its associated campaign prominently featuring increased minimum wage, tired arguments for raising the minimum wage are being once again retreaded. Unfortunately, they compound failures of logic, measurement and evidence.

It would stimulate the economy. If I pay $1 more than necessary to hire a worker, I get $1 less in services for my money. The increase in the workers’ consumption enabled by that $1 is a transfer from me to them, not a net gain.

It would increase others’ wages as well. Unfortunately, higher minimum wages reduce available jobs, and fewer alternatives don’t create higher wages. Unions and other competitors would see wage hikes, because alternatives become more costly, but other workers get fewer goods and services in exchange for their labor —i.e., decreased real wages.

It would make work more attractive, reducing government dependence. That would require additional jobs became available at a higher wage. However, fewer jobs will be available, so fewer people would be able to work their way out of dependence.

The minimum wage hasn’t “kept up” with inflation since the 1960s. This presumes without justification that the 1960’s minimum wage was economically justified. However, it was a Great Society aberration that coincided with a virtual stop in progress against poverty.

It also ignores that much of employers’ compensation goes to Social Security, Medicare, workmen’s compensation, new Obamacare mandates, etc., rather than as wages. As government- mandated employment costs ballon, the minimum wage substantially understates compensation.

The claim uses the CPI, widely known to overstate inflation, to calculate “real” wages. And the bias was even larger in the past. So going back to the 1960s for comparison mainly introduces a half century of compounded overstatements of inflation to dramatically understate real wage growth.

It would decrease the number of families in poverty. Unfortunately, as labor economist Mark Wilson put it, “evidence from a large number of academic studies suggests that minimum wage increases don’t reduce poverty levels.” One reason is that most minimum wage workers are secondary workers in non-poor households, while very few are heads of households.

Even important businesses endorse raising the minimum wage. Unionized businesses and those who already pay more than the federal minimum gain from raising it, by increasing rivals’ costs. That those employers who would gain at others’ expense endorse a higher minimum wage says nothing about the validity of arguments against it.

A higher minimum wage will pay for itself in higher productivity, lower turnover, employee morale, etc. Every employer who believed that to be true in their circumstances would pay more without needing any mandate. Are those businesses always accused of being too greedy not greedy enough? Further, why do those states with the highest state minimum wages have higher unemployment rates and lower economic growth rates?

Even if some lose their jobs, most low-wage workers will gain from a higher minimum wage. This assumes that other terms of work will remain unchanged, which is false. For those who keep their jobs, fringe benefits, on-the-job training, etc., will fall to offset additional mandated wages. And the increased wages may well be less valuable (as well as taxable) than what is given up, especially on-the-job training that helps people learn their way out of poverty. That is why labor force participation rates fall and quit rates rise when the minimum wage rises, in contrast to what would happen if those workers were made better off.

Supporters of a higher minimum wage claim altruism to help working families as their motive. But it actually harms most of those supposedly be helped, while benefitting supporters by raising costs facing competitors. They may claim, as did the Chairman of Ben & Jerry’s Board, “I support a living wage economically, morally and with deep conviction,” but it is really a self-interested infringement on freedom that is economically stupid and morally abusive.

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Levadiakos's picture

I'll take my wages in BTC

Boris Alatovkrap's picture

If Amerika is let King Soetoro rule much longer, maybe is no wage for minimum.

Gazooks's picture

not king, Boris


errand boy

James_Cole's picture


Unfortunately, they compound failures of logic, measurement and evidence.

Ok Gary, where’s your actual fucking evidence then? Other than your idiot ideas pulled out of your ass what do you offer here in terms of evidence based reasoning?? 

We exist in this place called “planet Earth” which has many countries, some of these countries have minimum wages and a lot don’t. Compare them - on any gawddamn metric you like - and see which countries (minimum wage vs. no minimum wage) come out ahead. 

‘Cause guess what, the world doesn’t conform to your stupid theories. This is how the world actually works:

There has always been and will always be a concerted effort, regardless of how profitable an enterprise, to reduce labour costs. 

gmrpeabody's picture

If you want your McJob, you can keep your McJob...

Mercuryquicksilver's picture

If you like your employees, you can keep your employees.

PT's picture

If China stops exporting to the rest of the world and wishes to consume what they produce, would Chinese wages have to go up?  Or would they have to go down?

666's picture

Instead of debating whether raising the minimum wage will help or hinder, how about implementing a minimum IQ requirement? The sheeple keep getting dumber and dumber, just like their fearless leader in D.C.

MontgomeryScott's picture

YEAH, um...

'Here, Ms./Mrs/Mr. applicant for cashier position, I have one more test for you.'

     'Like, um, O.K.!'

'All right. I have ordered a food purchase of $6.23. Here is your cash register (slides cash drawer over desk at applicant, with supplied money). I hand you a Twenty-Dollar Bill.' (He/she/it hands the applicant a $20 Bill). 'Just as this happens, the power goes out on your register.'

     'Oh, that sounds really shitty and crappy and bad!'

(AHEM) 'Well, um, yes. Anyway, you have ten seconds to count the change back to me. Are you ready? GO!'

     (Applicant reaches for i-phone, frantically flicking a flailing thumb, trying to find the 'tools' thing, and fails to find the 'calculator' function, as interviewer looks at watch. Ten seconds pass, and applicant is now shaking i-phone, hoping that it will respond telepathically, or at least roll the magic 8-ball of the 'unknown answer to the secret question' of HOW MANY of each monetary thingie is to be given back. TEN SECONDS PASS like an eternity...)

'Thank you. We'll be in contact.' (Interviewer waits for applicant to leave, then takes application, turning in swiveling chair, and the sound of a paper-shredder is heard)


New scenario:

Applicant waits in line at local welfare office, practicing signing name in cursive with right hand waving in the air ('air guitar' of writing skill-honing), frantically checking i-phone for new internet updates on the status of Just-in Bliebler. Taking a Hostess Twinkie, applicant adjusts fat pants, and breaks Twinkie in half, feeding the other half to her infant child in the stroller. Applicant is now 28 years old, never married, has had 3 abortions, and cannot name the vice-president of the nation in which she resides. Applicant becomes frustrated by the long wait, because she 'knows' her current boyfriend is probably loading the bong, right this minute, and she is 'missing out',)...

boogerbently's picture

This is the current "minimum wage" class that will be displaced by marginally more intelligent and aggressive unemployed if min wage gets increased.

All the employed protesters will be replaced by the next level up in the employment foodchain.

ebworthen's picture

Agree with you.

The abject greed at the CEO, CFO, COO, and HR department corner office suite of parasitic MBA's is a plague.

Arguments like this against the minimum wage have relevance only in a world where the rule-of-law is enforced, there are no central banks, no QE or bailouts, and there is sound money (backed by Gold and Silver).

In our Ponziconomy we may as well make the minimum wage $15 since the Kleptoligarchy is getting it's maximum wage already.

James_Cole's picture

Funny fact about Gary (author of this 'article'), the man works at Pepperdine.. Can just imagine him and his trust fund students sitting on the grass starring out at the pacific ocean discussing in gravely serious tones of how a minimum wage increase will destroy America. Life is tough bitchez!

PT's picture

They know that the only way they can avoid the minimum wage is by pumping out endless anti-minimum wage propaganda ...

MontgomeryScott's picture

As Gary and his 'co-conspirators' look out over the Pacific Ocean, there at U.C.Pepperdine, they calculate the wind speeds, knowing that the radiation; while invisible, is seriously depleting the environment that they are residing in. Siging to themselves, they wonder once again if the California government will be able to keep funding their paychecks (as they are 'I FORGET NOW AT THIS PARTICULAR TIME' billions in DEBT), and are faced with the task of telling their wives and children that the economy really IS going to implode, so they had better contemplate doing without 'essentials' like the Mercedes, or the new dog, or even the McMansions.

SERIOUSLY NOW: Do you have any idea how much one must 'earn' to even STAY ALIVE in the environment of SoCal?



Why don't YOU submit an article to the Zero hedge community, using YOUR vast base of knowledge, and describe what is REALLY happening; and ALSO, tell us where YOU work; or, even better WHO you work FOR? I could venture a few educated guesses.


James_Cole's picture


Why don't YOU submit an article to the Zero hedge community, using YOUR vast base of knowledge, and describe what is REALLY happening; and ALSO, tell us where YOU work; or, even better WHO you work FOR? I could venture a few educated guesses.

I did submit a link to an article (above), not one I had written obviously but who would be interested in that? Leave writing to people who can do it. Comments section is for the peons to sound off, if you can't handle it go retreat to whatever enclave happens to share your opinions.  Gary put his shit out there, he can expect some critics. 

StychoKiller's picture

Fsck that!  Let's put this BS to rest by raising the minimum to $100/Hr and see just how many worker drones benefit!

PT's picture

And why not?  The number one problem I see is foreign competition.  The number two problem is that the govt won't release any higher denominated notes.

Let's get something straight here.  The minimum price of real estate went up by 400% and no-one complained.  Oh, but that was due to fwee markits so it is all okay!  How does that "stimulate growth"?  Stock prices are not justified by earnings or dividends.  Real estate prices are not justified in terms of rent or mortgages.  Either stock and real estate has to come down or minimum wage has to go up.  Which do you think is more likely in the "real" world ( "real" as it gets more unreal every day )? 

Levels of debt need to be either defaulted on or inflated away.  What is going to happen?  In a hyper-inflationary environment, what is the trigger that increases the worker's wages that allows prices to inflate?  Benevolent bosses?  (I've seen the "reward" for employee of the month.  Don't tell me that better workers get paid more.)  The fact that bosses really will need to increase wages as workers won't come to work if their wage is battling to pay the price of one banana?  Or will workers start borrowing against the future value of their house just so they can buy groceries?

The point being that there should be a few amongst TPTB now that understand that if they don't want stock and real estate prices to go down then a few wages are going to need to go up in order to justify current prices (though that will mean they still "lose" in real terms).  Of course, as long as banksters still lend to idiots, all the extra money in the system will still get pumped into unrealistic real estate / stock prices and none of the little people will be any happier, but at this stage you can stop worrying about minimum wages being a problem.  Minimum wages rises are needed to play "catch-up", to cause over-all inflation and dilute debt but, like I said at the beginning, the effects will be fucked-over by the relatively cheaper wages found in foreign countries, and newly-issued debt will keep everyone worse off.

MontgomeryScott's picture

I was told that they always work in groups of three. In fact, over the years of study, I have found that this is invariably the case.

Does anyone else have any input regarding this urban legend?

TheReplacement's picture

The problem is that companies like Foxconn are looking to possibly offshore to this country now.  Minimum wage must go up to defeat that trend.  We will not be allowing jobs to come back to this country.  The side benefit of it hurting existing American workers who will see hour and job cuts nice but not essential.  This ship is going down no matter what.

OldBoy's picture

Agreed, we need it in order to keep the greedy from exploiting the little guys.

James_Cole's picture

Sowell's obvious ignorance shines through - Switzerland (my family lives in Switzerland) has some of the strongest labour wage protections around, to Americans the Swiss system would no doubt be seen as flat out communism. 

Here is an explanation of what some European countires use which would certainly not fly in the US:

In this instance we are talking about a form of universal minimum wage, not what slate uses as 'partial' minimum wage to muddy the waters. 

Suisse's picture

Switzerland is a toy country full of stolen Jew gold due to Nazi collaboration. 

tokengator's picture

And europe is a raging success.


I'd rather not have government get involved in anything or any market, labor or otherwise. Once you start picking and choosing then the picking and choosing starts expanding and you end up where america is today. I'd prefer to have the federal government as tiny and unintrusive as possible. Less federal government and all its cost multipliers (including but not limited to regulations often supported, paid for, and designed by crony corporate friends of the politcal class to stifle competition) alone will drive the costs down substantially to run a business and thus costs in general. 

PT's picture

Listen to meeeee:  "You will be richer, if only you would allow yourself to be poorer!"  We are no longer part of the superstitious age.  We have scientific proof! that you will be richer if only you are poorer.  You are the worker class.  You thrive on competition.  Pay no attention to those CEO folks.  They NEED incentives.  Even though they only do it for the thrill of the deal.  They don't actually need the money.  Except that they do. Just trust me ...

A Nanny Moose's picture

With few exceptions, this is the sole purpose of most heads of state. The younger, and more naive, the better.

Look closely, you will see the strings.

SAT 800's picture

I'm working on a Politcal Action Committee to run Putin for President; but so far, it's pretty uphill work.

kralizec's picture

Yes, so Boris live thru Soviet paradise and knows first hand.  Boris should be speaker in American cities, warn

Peter Pan's picture

I'll be happy if they impose maximum wage limits on bankers and some CEO's.

Levadiakos's picture

Yeah and cap Beiber's pay too

Carl Popper's picture

Let us pass a law that salaries have to be capped at a reasonable level.

Let us also limit profits and cap them at a fair level so that no one is allowed to make excess or unfair profits.

Let us appoint a government committee to decide what is a reasonable salary limit and profit cap for each job and industry

SAT 800's picture

I know; we could call it the commisar of workers ! and have a five year plan ! It'll be great ! I can't wait.

Carl Popper's picture

I am glad someone can appreciate my genius.

Citxmech's picture

The only theory that I can see that justifies a "Federal minimum wage" - is when employees can qualify for public assistance due to their poverty status WHILE being employed full time.  "Slum employers" essentially get a subsidy from the public specifically for paying desperate folks less than a "livable wage."


Citxmech's picture

My point was that you can't address the minimum wage issue without reviewing the entire public assistance system - including the concept of a "social safety net."  They are all intertwined.

Gene Parmesan's picture

I think "Carl" is also supposed to be spelled Karl.

Mercuryquicksilver's picture

Please include price controls so things don't cost too much.

Carl Popper's picture

That is a different government agency.

sunnyside's picture

Which would grow to three duplicating agencies.

mumbo_jumbo's picture

that's called a windfall profits tax and it's been done before.

MontgomeryScott's picture

Your avatar name is well-taken, as this is one of the classic movies of all time.

LETTUCE SPRAY, I think you meant.

Fucking tin-fiol-hat-wearing nut-job 'conspiracy-theorist'... _ _ _ ... (We got a NEW CODE, commander!)

MontgomeryScott's picture

@ Levadiakos:


Beibler. Beibler. BEIBLER!

'CAP' Beibler. (Oops, I forgot to finish the rest of the quote)

Gene Parmesan's picture

Yeah, because we should trust the government to control how much private businesses compensate their employees. I mean, their economic theories and policies have worked well so far, right? Yay, totalitarianism!

Joe Davola's picture

Righto Gene - somehow there will be plenty of loopholes for donors and exemptions for the federales.

WTH, the Chief Exec can just write a memo and declare who is and who isn't making too much/too little.

john39's picture

minimum wage = fake solution.   end central banking and debt based currencies and you wouldn't have to keep the slaves in line by raising up their income a touch to give the appearance of generosity...  meanwhile inflation steals away gains anyway.

Boris Alatovkrap's picture

<-- Minimum Wage = Minimum Jobs

<-- More Jobs