Wednesday, 13 February 2013

Minimum Wage Laws: Obama vs Rothbard

At yesterday's State of the Union speech president Obama said,
Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full time should have to live in poverty,” he said in calling for a hike in the $7.25-an-hour minimum wage. “This single step would raise the incomes of millions of working families.
Well, it does not help with a higher wage if you lose your job or fail to find a new one because the costs are above what the employers are willing/can afford to pay. Yes, "working families" will earn more, but there could be fewer of them if the minimum wage is raised further. And with unemployment rates in the U.S. still high, this is not one of Obama's wisest of moves. Here's what Murray Rothbard had to say about minimum wage laws,
In truth, there is only one way to regard a minimum-wage law: it is compulsory unemployment, period. The law says, it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum-wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result. 
All demand curves are falling, and the demand for hiring labor is no exception. Hence, laws that prohibit employment at any wage that is relevant to the market (a minimum wage of 10 cents an hour would have little or no impact) must result in outlawing employment and hence causing unemployment.  

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