Trade Offs

I read a point on the Economist's website today that reminded me how the federal minimum wage was raised to its current $7.25 in July of 2009. Probably the worst time for wages to be kept artificially high given the economic climate at the time. The higher the minimum wage becomes, the more that low skilled people will be out of work. It's an economic principle (although an unfortunate one) that those not worth being paid $7.25 will not be paid at all.

Not only does it create shortage of labor demanded, but a small proportion of our working population is currently paid at or below the minimum wage. The Bureau of Labor Statistics puts it at 3.6million people, which is 4.9% of the hourly paid workforce. Any raise in the minimum wage thus benefits a few already in the system but will most likely cast some out and definitely keep others from entering who may need it most.

In my own thinking I recognize there is a trade off between an ideal where everyone makes enough money to support their family, body and whatever other endeavors. However that level of prosperity cannot be achieved through wealth redistribution. A minimum wage of $100 an hour would seem to grant a high quality of life to all but at a cost of ruining businesses nearly completely. I assume most would agree to that point. Similarly, those who want to have the government regulate MPG in cars to an artificially high standard in order to save the atmosphere would be better off at just going for a ban of all cars because zero gas consumption is better than a little. There is trade off thinking in that as well: one can't ban cars because we need them so let's stretch their capabilities farther than the market demands.

Without a minimum wage there would still be unemployment, there would still be poor people, there would still be injustice. However I would wager there would be fewer in those categories mentioned when firms and individuals are granted more freedom to use the resources they possess in a manner best suited to their needs.