Saturday, 18 June 2011

Minimum wage laws cause unemployment: Fact

MP Philip Davies has got himself into bother with the establishment consensus, by making a point about the National Minimum Wage and how it is a barrier to some people getting a job. In the Newsnight clip chez Mark Wadsworth, you can see him beating a disorderly retreat in the face of the onslaught of rage that anyone would dare question the politically correct but economically incorrect consensus view.

The only way that minimum wage laws don't cause unemployment is if they are set lower than the market rate. As soon as they go above the market rate, they cause unemployment. Whether this is fair in neither here nor there. Fairness doesn't come into economic laws any more than it impacts the laws of physics.

Don't believe me? Okay, why don't we set them to £10 per hour? Or better yet £20 per hour? Do you not think that will cause immediate unemployment to a vast number of people currently working below that level? You may concede this point, and come back and say, 'yes, but no one's saying we should set it that high'. No, because even the most dunderheaded interventionism shills accept the truth. So, if you accept £20/hour is too high, how will we know what level they should be set at? What is the economic calculation that should be employed by the central economic planners? I'll wait a little while, as you rifle through your graphs and mathematical models ... give me a shout when you've got an answer, I'll be banging my head against that brick wall over there.

UPDATE: A commenter, Lee, pointed me to this clip from Peter Schiff, which gives a good example of the issue in question:


Mark Wadsworth said...

Ta for link, agreed.

By a roundabout route, they do have an incredibly high minimum wage in France, the inevitable results are:

1. Average output per worker is very high.

2. Unemployment is very high.

As I always like to say, it must be better for 6 million people to be earning £4 an hour than for 4 million to be earning £6 an hour and for 2 million to be unemployed.

Anonymous said...

As you seem to think that the min wage should be scrapped, can you answer me a question?

Do you also think that industrial relation laws brought in by Thatcher and others restricting the activities of unions and workers generally to support one another in industrial disputes, should also be scrapped?

After all, if Government has no right intruding into the contracts between workers and bosses (by setting min wage and therefore on the side of the workers) then surely it has no right to intrude by restricting the activities of unions (therefore on the side of bosses).
Goose, gander an all that.


Trooper Thompson said...


no worries.


"by setting min wage and therefore on the side of the workers"

My point is that it is not on the side of the workers, that it is counter-productive, like government intervention in general. You must look at the consequences beyond the immediate, in other words, look not only at the workers who get a pay rise due to minimum wage laws, but also to the workers who lose their jobs or those that never get jobs because of the minimum wage laws.

As for the question, I believe the law should be general, with no special cases, so indeed what is good for the goose is good for the gander. Workers have a right to withdraw their labour, but they don't have a right to prevent or attempt to prevent through intimidation other people from working or their employer from hiring other willing workers. This doesn't require any specific laws, as it can be covered by the common law against assault and issuing threats.

I have no great knowledge of labour relations laws. I'll agree to scrapping Thatcher era laws, if we can scrap all the ones before and since at the same time. That would be applying the goose/gander principle.

Sue said...

Yep. In truth, is does a whole lot of damage. If I want to undercut everyone and sell my skills for less than the minimum wage, I should be able to. It´s a well known fact that some people work for less, especially in the fruit/veg picking industries, albeit illegal. Such work is then not offered as general employment in job centres or employment agencies, but by word of mouth. I´m sure there are plenty of people willing to work for less, they´re just not allowed to.

Trooper Thompson said...

You're right Sue. Minimum wage laws impose restrictions on the least skilled workers. And still they wonder why youth unemployment is so high.

Maddie said...

Back prior to the minimum wage (when we had factories !! ) we had 4 lads working as sweeper uppers, they were children in mens bodies and it was all they were capable of, once minimum wage came in they were finished and 1 able bodied employed to do the work of the 4 as it made financial sense. The lads (all living with parents) were happy on a low wage and it gave them a sense of achievement, minimum wage took all that away and increased the unemployment figures

Trooper Thompson said...


a sad story, no doubt quite common. What is impossible is to get those in favour of mandated minimum wages to take responsibility for such things. They will only blame the 'greedy' employers.

Lee said...

The devastating effects of minimum wage legislation are clearly explained in this short video.

Trooper Thompson said...

Cheers Lee, I hope you'll find the time to watch the Peter Schiff interview above.