home > this article

Devil's advocate: Minimum wage

By Solomon Hou
web posted November 13, 2023

I'm going to try to play the devil's advocate, and argue how it is possible how slightly raising the minimum wage could be helpful in some situations. I'm going to try to establish what a minimum wage is, and why it was even implemented. The Minimum wage is essentially a price floor, forcing companies to pay people a minimum wage. However, according to Roosevelt, the establishment of the minimum wage was for a living  wage. " It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country … by living wages I mean more than a bare subsistence level-I mean the wages of decent living." The original purpose of the minimum wage was to be a living wage, but unfortunately, if both parents work full time at the federal minimum wage, it places them just above the poverty line for a family of four. There is clearly a moral aspect to this debate, but what about economics? 

The idea of tradeoffs, that there is no such thing as a free lunch is true in perfect economic conditions, but not always true. In an idealized market, a higher minimum wage will in fact lead to less employment. However, real markets are not as clear cut as in this idealized market. In reality, this model disregards the actual reality of economics in the world. This model makes many assumptions that aren't necessarily true. The market is not perfectly competitive, there are opportunity costs when searching for another job, and workers have total control. In the game of chess, I know where my pieces are, and I also know where my opponent's pieces are. With a little bit of analysis, I am able to rather accurately figure out who is winning. However, in the real market, there is the problem of inaccurate information, where a major business knows how much a worker is worth, but the worker actually doesn't know if he's being paid a fair wage.

Another issue is monopolies, where people have no choice but to work for a company. Let's say there are 9 people and three companies. All the people should be paid around the same wage, but some people are slightly better than others. If each business needs 3 people, the first and second business are obviously going to take the best out of the nine people. For the last three  people, they actually don't have much control. The other two businesses have enough people, and those people are slightly better. In other words, he will have to take a lower price than his market value, or be forced to find a job in another town, potentially with a commute of one hour. In this situation, where the company has power over the labor, a minimum wage would be beneficial. In the short run, the company can afford to be short staffed while the individual cannot, but with a minimum wage limit, the company knows they cannot legally negotiate the price any lower, providing an incentive to hire the worker. 

This is the reason that some economists aren't certain whether raising the minimum wage is actually going to cause unemployment. Companies need labor, and as long as the price of labor is relatively reasonable, it shouldn't drastically decrease jobs or increase prices. Surveys of economic professors found 34 percent agreed it would decrease jobs, 32 percent disagreed, and 24 percent did not know. The rest didn't answer. Also, 47 percent said that raising the minimum wage to 9 dollars would be good, 32 percent didn't know, and 11 percent disagreed. This clearly shows how the topic of minimum wage is not clear cut. Different studies all come to different conclusions.

The concept of minimum wages is not as clear cut as it may first seem. In fact, different states might need different minimum wages. In Silicon Valley, where the cost of living is incredibly high, the minimum wage would have to be higher than in rural towns. The solution to the minimum wage laws is complex, and cannot simply be solved using idealized models. ESR

This is Solomon Hou's first contribution to Enter Stage Right. (c) 2023 Solomon Hou.


Ornate Line 


Site Map

E-mail ESR


© 1996-2023, Enter Stage Right and/or its creators. All rights reserved.