Home Business We Have Your Proof The Minimum Wage Is Too High Right Here

We Have Your Proof The Minimum Wage Is Too High Right Here

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It’s lovely what can be proven if one only looks at newspaper headlines the correct way around:

One post, 947 applicants: restaurant’s story reveals the depth of UK jobs crisis
Desperate candidates for a minimum wage role in Manchester face dwindling savings and choosing between paying for food or bills

This is proof that the minimum wage is too high. 947 applicants for a minimum wage job, 946 of them are going to be disappointed. A lower minimum wage would mean more people would be employed, obviously, those wages are a cost to the employer.

That’s all the proof we need.

A free market in wages leaves – after adjustment periods – no one unemployed. For we do have to recall what is our definition of unemployed. It is not someone out of work. A housewife is not unemployed, a retiree is not unemployed, they simply do not have a job. Unemployed is wanting a job, searching for a job, but not being able to find one. So, if wages are lower there will be fewer people desiring to work at that prevailing wage rate.

We know this is true because there are those studies about raising the minimum wage. Which go on to say that more people would make the decision to stop not having a job and decide to have one. That is, a higher minimum wage leads to greater labour supply. This isn’t odd, it’s just obvious. Increase the price of something and you’ll increase the supply. Higher wages increase unemployment through this route alone, whatever we then go on to say about the higher price reducing demand for that now more expensive thing.

£8 an hour is clearly above the market clearing price for restaurant labour. Therefore the minimum wage is too high.

Which does lead to a policy prescription for our current times. Simply abolish all minimum wage legislation. If employers are only willing to offer 1 pence an hour then so be it. If, that is, unemployment is our major concern, something that it might not be. But that’s a useful test for those who claim that it is their major concern. In these hard times the way to kill unemployment is to allow wages to adjust to the current oversupply – at current prices – of labour.

What’s that? There are other things that matter as well as unemployment so we don’t want to do that? OK, that’s fine, then there are other things that matter other than unemployment then, aren’t there?

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3 COMMENTS

  1. Which does lead to a policy prescription for our current times. Simply abolish all minimum wage legislation. If employers are only willing to offer 1 pence an hour then so be it. If, that is, unemployment is our major concern, something that it might not be.

    Sure, but the reality is also that 1 pence an hour does not provide sufficient income for a person to live independent of the welfare state, so in essence such employment practices simply end up being a subsidy to the employer (since the difference between the rate at which the job pays and the living wage is provided by the taxpayer in the form of welfare).

    In that respect, perhaps having a low, but liveable minimum wage upon which no tax is due (because that’s just stupid) is a better solution than having no minimum wage at all?

  2. “Unemployed is wanting a job, searching for a job, but not being able to find one.”

    No, it’s being unable to *get* one. I’ve found thousands of jobs in the last ten years, and applied for more than 2500 of them. Out of those I’ve only *got* 11 of them.

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