Minimum Wage Laws Cause Unemployment

Wednesday, August 4, 2010 \PM\.\Wed\.

The traditional economic take on the minimum wage is that it causes unemployment. If the law says that an employer must either pay a man $7 an hour or nothing, and the man is only worth $5 an hour to the employer, then he will pay him nothing, and the man may go jobless. Many people are skeptical of this line of reasoning. After all, the U.S. recent raised the minimum wage from $5.25 an hour to $7.15 an hour, and it’s not like unemployment is terribly high right now.

Okay, bad example. The truth is that while the theoretical case against the minimum wage is sound, it can be hard to test the theory empirically by looking at the U.S. because minimum wages here tend to be low enough as to only apply to a small portion of the population (around 3%). Given that the minimum wage applies to so few workers – and the fact that market wage for even those workers is probably not far off the legal minimum – its not surprising that whatever effect minimum wage laws have on unemployment tends to get obscured by larger trends in the economy.

The picture is different if we take a worldwide perspective rather than confining ourselves to looking at the U.S.

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Progressives Are Not Cynical Enough About Business

Friday, July 16, 2010 \AM\.\Fri\.

One thing my study of economics has taught me is that businesses will tend to act in whatever way they think will bring them the most profit. There may be rare exceptions, and of course businessmen often have mixed motives. But the overall tendency in this direction is very strong.

My guess is that if you surveyed people, many more self-described progressives would say that they agreed with the statement than self-described conservatives. Indeed, progressives often criticize conservatives and libertarians for being insufficiently attuned to the rapacious self-interest motivating businessmen.

Yet oddly enough, it seems to me that one of the main problems with progressive thought is that they don’t take the idea that businesses act to maximize profit seriously enough. For a group that claims to have a low opinion of businessmen, progressives have a strange habit of advocating policies that will only work on the supposition that businesses won’t act to maximize profit, and then react with shock when they proceed to do so.

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