Wednesday, 31 October 2012

Drowning the poor in excessive wages: the problems of the minimum wage law

Robert Schuldt, Davis Woodall and Walter E. Block (Loyola University New Orleans, Louisiana, USA) published in Humanomics Volume 28 Issue 4 (2012)


The purpose of this paper is to demonstrate that the minimum wage law is deleterious to the unskilled, to the young and to members of minority groups.
The main method used in this paper is the logical application of basic supply and demand economic analysis.
The authors found that when a minimum wage of any given level is imposed, those with productivities below that level are at great risk of unemployment. For example, with a minimum wage of $10 per hour, those who can only produce at the rate of $1-$7, $8, or $9 per hour are likely to become unemployed. Similarly, if the level is raised to, say, $100, then even people with productivity levels of $8 or $90 per hour will lose their jobs.
Research limitations/implications
More effort should be made to ascertain who it is that gains from this law, if it is not the poor and unskilled. Attention should be focused on labour unions in this regard.
Practical implications
The practical implication of this research is that the minimum wage should be repealed.
Social implications
Present public attitudes, however, overwhelmingly support this legislative enactment. But this is based on economic illiteracy. The public needs to be educated in basic economics.
This paper, if its implications are implemented, will have great value for all those who wish the unemployment rate to be radically reduced.

JEL classification: J64

Hazel’s comment:
Please remember that the author is writing about the USA but many students of economics believe that the same effect can be seen in the UK.

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