Wednesday, April 13, 2005
Maximum Nonsense
One easy way to judge a public figure's grasp of economics is to check out his position on regulating prices. This includes price controls (maximum prices) and minimum wages. The surest way to cause a shortage is to set a maximum price below the market rate. For example, the gas lines in the 1970s were caused by government controls over the price of petroleum.
It works the same way in reverse. Minimum wage laws result in less demand for low-skilled workers and more workers seeking employment. The result is more unemployment at the bottom of the economic ladder. Being employed at $3 per hour beats unemployment at $5 an hour. The real minimum wage is zero.
Rick Steves reveals his economic foolishness:
The minimum wage is about $1 an hour ($144 a month). It costs $3.50 to go to a movie. Cesar explains that, in El Salvador, a worker is happy to be employed. While in the USA minimum wage is at rock bottom level, most Salvadorans aspire only to minimum wage and that’s all they get.
I guess American workers aren't happy to be employed. (By the way, the U.S. minimum wage is not at "rock bottom.")
Let's look at what happens when the minimum wage is reduced (please scroll down):
In the wake of the earthquake devastation, Salvadorans saw compassionate capitalists roll up their sleeves and move right in. Shirt manufactures moved into the earthquake devastated area to provide jobs…on condition that the government allowed them to lower the minimum wage from $144 a month to $85 a month. No problema.
Steves misses the whole point. It was the lower minimum wage that made Salvadoran workers employable. Employers don't hire people out of charity. $85 a month is all that they can afford to pay Salvadoran workers. If the minimum wage doesn't affect employment, why not make it $1,000 an hour? Basically minimum wage laws cut off the bottom rung of the economic ladder.
Leftists don't notice that what helps to impoverish the Third World is its imitation of the West's welfare state and regulatory policies. El Salvador lacks the prosperity and skilled work force to absorb minimum wage laws. The same applies to taxes. Third World countries impose progressive rates that kick in at much lower levels than those in America. The result is slower growth. The Third World would do better to imitate Hong Kong's laissez faire.
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One easy way to judge a public figure's grasp of economics is to check out his position on regulating prices. This includes price controls (maximum prices) and minimum wages. The surest way to cause a shortage is to set a maximum price below the market rate. For example, the gas lines in the 1970s were caused by government controls over the price of petroleum.
It works the same way in reverse. Minimum wage laws result in less demand for low-skilled workers and more workers seeking employment. The result is more unemployment at the bottom of the economic ladder. Being employed at $3 per hour beats unemployment at $5 an hour. The real minimum wage is zero.
Rick Steves reveals his economic foolishness:
The minimum wage is about $1 an hour ($144 a month). It costs $3.50 to go to a movie. Cesar explains that, in El Salvador, a worker is happy to be employed. While in the USA minimum wage is at rock bottom level, most Salvadorans aspire only to minimum wage and that’s all they get.
I guess American workers aren't happy to be employed. (By the way, the U.S. minimum wage is not at "rock bottom.")
Let's look at what happens when the minimum wage is reduced (please scroll down):
In the wake of the earthquake devastation, Salvadorans saw compassionate capitalists roll up their sleeves and move right in. Shirt manufactures moved into the earthquake devastated area to provide jobs…on condition that the government allowed them to lower the minimum wage from $144 a month to $85 a month. No problema.
Steves misses the whole point. It was the lower minimum wage that made Salvadoran workers employable. Employers don't hire people out of charity. $85 a month is all that they can afford to pay Salvadoran workers. If the minimum wage doesn't affect employment, why not make it $1,000 an hour? Basically minimum wage laws cut off the bottom rung of the economic ladder.
Leftists don't notice that what helps to impoverish the Third World is its imitation of the West's welfare state and regulatory policies. El Salvador lacks the prosperity and skilled work force to absorb minimum wage laws. The same applies to taxes. Third World countries impose progressive rates that kick in at much lower levels than those in America. The result is slower growth. The Third World would do better to imitate Hong Kong's laissez faire.
