Does a ‘living wage’ create economic growth for both business and worker?

This is the start of an ongoing series that Economic Collapse News is doing to debunk various myths that some non-libertarian readers may purport from time to time in our comments section.

Last weekend, Economic Collapse News reported on D.C. Mayor Vincent Gray scrapping legislation that would require Wal-Mart and other big-box retailers paying their employees a “living wage,” which would amount to a proposed minimum wage of $12.50 per hour. Gray, who isn’t the most conservative or libertarian official, concurred that it would be a disaster for the economy and the impoverished.

This article was immensely popular and has garnered controversy among our readers.

Imposing a living wage has been the tagline for liberals, socialists, Occupy – they wanted a minimum wage of $20 per hour no matter what kind of work would be performed – anti-poverty activists and unions for years. A higher minimum wage, it is said, would benefit the economy, companies and workers.

The quintessential question that should be asked is: does a minimum wage help anyone other than unions and large corporations? The short answer is no, but the longer answer is that it’s a disastrous policy for the poor, the unskilled, the uneducated and the most vulnerable in our society.

ECN has extensively reported on the minimum wage (here and here), but let’s take a brief look at why the minimum wage should be abolished.

Teens, unskilled

Minimum wage jobs were initially meant for students, teens, the unskilled, immigrants and those who do not have an education. These kinds of positions were great to develop some sort of marketable skills to earn a higher salary either with the same company or somewhere else. By imposing higher minimum wages then these individuals are priced right out of the labor force.

Prices

One just has to look at unemployment and prices: when a consumer buys a product, they are paying wages, benefits, overhead costs, revenues and profits. Once this rises, they might stop consuming the item in question.

Unemployment

If a business is mandated to pay a set wage then they will seek out the most experienced and a highly qualified worker for the job. This means, again, this leads to higher youth unemployment – countries like Spain have temporary suspended minimum wages for youth in order to stimulate job creation.

Voluntarism

This is a political philosophy argument: why does government interfere in a non-coercive, voluntary relationship between an employer and employee who have agreed upon a set wage?

Nickels and dimes

The standard argument is that if it weren’t for governments and unions then companies would be forcing their workers to live on five cents per hour, they would have to work 12 hours per day and everyone would have to work on Christmas (if not then they’re fired). This couldn’t be further from the truth.

– Companies wouldn’t pay five cents an hour because businesses would be competing for the best workers. If person A is making 100 burgers an hour but is only making 10 cents an hour then another business would see the value of those 100 burgers an hour and immediately offer that person a higher wage. This would lead to a bidding war.

– Companies do not benefit by having their workers work themselves to the ground (long hours, no breaks, etc.) because this leads to shoddy products that consumers would not want buy.

– Incentives, such as health benefits, are given by companies because they want the best and brightest to stay with the private company and not be swayed to head somewhere else and give that enterprise their expertise and work ethic.

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