Sunday, April 13, 2014

The price of the minimum wage


The minimum wage will be raised by 19p from October. To the majority of people, this sounds like good news.
To those who read the parable of The broken window by F. Bastiat, this measure begs to be questioned further.
Bastiat explains how “forced redistribution of wealth”, by whatever means, results in unforeseeable consequences and implies that the initially intended goal will not be attained without further use of force.

From this perspective, raising the minimum-wage is a cure worse than the disease.
No one can tell what will happen to the people whose skills can not justify being paid the new wage rates.
Small businesses which cannot dispose of their employees will have to pay more for the same amount of work and without any increase in profits. This will force them to raise the prices of their products or lose opportunities to develop.

Furthermore, it becomes unavoidable to see that a relation exists between undeclared work and the practical impossibility to hire legal workers for jobs that do not justify paying the minimum-wage. This creates room for unregulated markets in which “other people” will accept less money than what the State mandates and, in that way, lead to other problems that we will discuss another time.

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