Tuesday, January 14, 2014

Minimum Wage Laws and Racism

Standing in line marking time
Waiting for the welfare dime
'Cause they can't buy a job
--Bruce Hornsby & The Range

Suppose you represent a group of workers that happen to be predominantly of a particular skin color. Your group earns a comfortable wage.

A new group of people that happens to be of a predominantly different skin color arrives in town. They are looking for work. They are willing to do the same work as people in your group for 30% less pay.

This is competition. People in your group don't want this competition because it would mean lower wages and likely even unemployment for some in your group who get supplanted by workers from the rival group.

People in your group turn to you to protect their wage franchise. You must do something or they will find another representative. So you get together with politicians to devise a law making it illegal to pay workers anything less than the wages earned by people in your group.

This law effectively shuts out competition from the rival group. Employers will have little incentive to hire those people of a different color. After all, workers in your group are known quantites to employers. There is little reason to believe that people in the rival group can perform work any better than people in your group. So why hire them for the same wages paid to people of your group when there will surely be transaction costs associated with the change?

Moreover, many employers may prefer workers from your group because they identify with your group's skin color. In an unhampered market, however, there will be natural pressure on employers to shed their bigotry in pursuit of economic gains to be had by hiring competent workers at lower wage rates. But the newly enacted minimum wage law impairs this process.

Discouraged, the rival group leaves your town and moves on to the next one in search of work.

Your workers thank you for supporting them. The status quo has been preserved.

And you have now followed a long line of people that have employed the strong arm of government to enforce discriminatory, racist agendas.

1 comment:

dgeorge12358 said...

The concept of minimum wage is crazy, if you really stop to think about it. If $8 an hour seems right, why not $20 an hour? If it's coming by order of the government, why stop at any level? Why not just say everyone should get what Gates gets?
~Malcolm Wallop