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The Minimum Wage Law - Essay Example

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For seventy years America has struggled with the problem of how to define poverty and to devise a minimum wage law that would guarantee that every working man or woman would earn a rate of pay that would exceed the poverty level. The modern minimum wage law, which sets the lowest rate of pay that can be paid by employers in most cases, sets the rate at $6.55 per hour…
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The Minimum Wage Law
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Download file to see previous pages Opponents contend that the law costs jobs and is an unwarranted and unnecessary intrusion into the affairs of business. In fact, the minimum wage law is an unproductive and unconstitutional law that increases unemployment, does not reduce poverty, and should be repealed.
Labor is one of the few commodities that is marketed in the US that has a price floor, and this artificial subsidy is counter-productive in a capitalist economy. Subsidies on items such as agricultural goods serve the purpose of stabilizing the market during periods of unusual production gluts or shortages. However, this is not the case for labor. The low skilled, low-end worker is subsidized by their co-workers and the employer as a form of economic welfare. For example, an employer needs to hire two people and he has a budget of $13.10 per hour for labor. One of the positions is more skilled, and the other is part time so he would like to hire an $8 per hour employee and a $5 per hour part time worker. However, the law says that he must hire two employees at $6.55 each to stay within his budget. The part time worker receives a $1.55 subsidy from his more skilled co-worker. The employer is faced with hiring a sub-standard employee for the $8 per hour slot, or hiring only one employee. According to Sowell, "Making it illegal to pay less than a given amount does not make a worker's productivity worth that amount, and if it is not, that worker is unlikely to be employed" (163-164). When goods, in this case labor, are overpriced the market demand is reduced. Rather than providing a living wage and a job, the minimum wage law drives down the cost of labor and transfers wealth from the lower economic classes to the minimum wage job holder.
In addition to the reduction in demand for labor that comes as the result of mandatory pricing, there is also an oversupply of labor as many people make their services available that may not have been offered at the previous and lower prices. Teenagers, first time job seekers, part time workers, and seasonal workers may drive up the supply as their labor becomes worth more and working becomes more worthwhile. This adds to the evidence that most minimum wage jobs are filled by teenagers working summer jobs, part time help, and entry level workers, rather than coming from a background of poverty or the working poor (Even and MacPherson ii). Rather than increasing wages, the current minimum wage law creates an oversupply of labor and actually keeps wages down.
The US has traditionally been a free market capitalist system, and intervening with an artificial floor on wages that is determined outside the market, reduces total employment in this environment of market economics. Labor, just as goods and services, is subject to the law of supply and demand. According to Ferguson, "The main influence is the pressure of demand on the supplies of goods and services and on the supply of labor. When demand exceeds supply there will be pressure on wages to rise" (215). The law of supply and demand further states that when prices rise, demand falls. This is especially true with prices that are set by a legal mandate. Sowell states, "a price artificially raised tends to cause more to be supplied and less to be demanded than when prices are left to be determined by supply and demand in a free market" (163). As ...Download file to see next pagesRead More
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