The minimum wage

January 25th, 2013 at 2:00 pm by David Farrar

Matthew Jones wrote in the NZ Herald:

I read with astonishment the contribution on Friday from Julie Fairey who seemed unaware of the facts of minimum wage increases and their dire, unintended consequences.

There is little doubt that we desire higher wages and higher standards of living for our society but this cannot be done through legislation.

The effects of a minimum wage increase, despite their good intentions, have led to those whom it is intended to help being unemployed or finding it more difficult to find jobs and learn skills as the incentive to hire gets legislated away.

American Samoa had a terrible case of this when the federal Government increased minimum wage up to US$7.25 an hour, in some cases an increase of $4 an hour.

This is good isn’t it? High incomes and more economic demand as Julie Fairey “argues”. Well no, what happened was a mass exodus of jobs, one fishing and canning company slashing thousands of jobs on the island nation, sending them to the US state of Georgia.

Those earning around US$4 an hour now had nothing and American Samoa lost enormous job-creating investment that now headed to a small town in southern America where more skilled labour can justify the higher costs.

There is only one sustainable way to lift wages – productivity.

You could increase the wage to $100 per hour, surely even a diehard socialist could see the damage it would do. But the principle is the same at every level. The ripple effect of these job losses caused by such intervention in the market can be devastating.

The damage tends to depend on where the minimum wage is set, in relation to the median wage.

Although many who study minimum wage come up with differing opinions about the amount of job losses due to minimum wage increase, the most devastating is surely what is unseen.

What we don’t see is the entry level jobs that could have been created if legislation did not distort the market, jobs that would have allowed those unskilled, maybe currently on the dole, to earn an income and provide them with hope for the future.

Have you ever wondered where those ushers went from movie cinemas? Or window washers at service stations? Bag packers at supermarkets?

There is no point in the employer hiring if the cost is greater than the value produced. This is a law that tells employers to discriminate against the young and unskilled.

It is no coincidence that youth and minority unemployment is much higher than the national average. And indeed no coincidence that it was not always like this.

Absolutely not. There was a strong correlation between youth and adult unemployment for around 25 years up until the abolition of the youth minimum wage in 2007.

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