Prohibitions on Low-Skilled Labor (A.K.A. The Minimum Wage)

See this post on how the benefits of the minimum wage don’t go to the poor.

How would you describe the minimum wage?

I’ll bet something like this, “A law that requires businesses to pay their employees a certain level of wages.”

Let’s simplify the discussion on Minimum Wage with a little Valerian Vision: “Who controls what value?”

A labor contract is entered into between parties: an employee and an employer. If each party controls its own value, then they only enter into a contract when it is mutually beneficial. So, what effect does the Minimum Wage wage have on “who controls what value?” Does it force employers to enter into labor contracts with people the employer doesn’t want to hire? No. Does it bar employers from hiring some people it wants to hire? Certainly. For example, Julian is a high school dropout from a troubled family, but he loved machine shop in high school. He can only produce about $5 per hour worth of value for the first six months as a welder because he’s mainly being trained. Does the employer want to hire him? No, because the employer would lose money for a full six months (paying $9 per hour, but only getting $5 per hour in return). Who knows if Julian would even stick around for 6 months.

But what if Julian wants to become a welder? He’s okay with pay commensurate with his skill while he’s being trained — that should be okay, right? Too bad. It doesn’t matter. As a low-skilled worker, Julian is barred from entering into labor contracts where he is paid commensurate with his skill.

As a consequence of this prohibitions on low-skilled labor, low-skilled workers lose control over their value. To illustrate how discriminatory this is, take the following example from my post on inequality.

Let’s say you have very high productivity. You can program iPhone apps very quickly and you contract yourself out at $200 per hour. If you like a job, can you choose to take less, like $150? Certainly. If you are desperate for work, can you lower your price to $100 per hour? Of course. But now imagine that you have very few skills. Let’s say your productivity is worth $10 an hours, but you’re having a hard time finding a job. You need work desperately, can you lower your price to $5 an hour? No. Because of the minimum wage, you don’t have a right to sign a labor contract at $5 an hour. Sorry, you are not equally protected. For those people that think the minimum wage helps the poor, you need to explain how taking something of value (i.e. the right to choose how much you will charge for your labor) away from the poor helps them? If you want to help the poor, you should transfer value to them not away from them. See the earned income tax credit as an example of a much better way.

And based on the Econlib link above, it is clear why the minimum wage is so popular — it hurts low-skilled workers, who don’t have the wherewithal to protect themselves, and benefits anyone who doesn’t want to compete with low cost labor (Costco, Taco Bell, etc.).

Words matter. Which is why Valerians use the term prohibitions on low-skilled labor instead of the term minimum wage.