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Response to Unemployment and Minimum Wages

from Russ Nelson (nelson@crynwr.com)
The answer is that you can have a minimum wage law which discourages anybody whose labor is worth less than the minimum wage from seeking work. Since unemployment is only measured by counting the people who are looking for work and not finding it, the minimum wage law doesn't "cause" any unemployment.

Another effect is that when the minimum wage rises, an employer will treat it like any other increase in cost. The first thing they'll do is try to find other places to economize. Their need for labor can't be overcome immediately. Sometimes a machine will need to be invented to displace somebody's labor.

Another effect is simply that an increase in the minimum wage doesn't raise very many people's wages. Consequently the increase in unemployment will be small and lost in the noise.

That's why Brad can reasonably say that the minimum wage law doesn't create much new unemployment. On the other hand, if you listen to some leftists, they say that the minimum wage should be doubled. If they got their way, unemployment would be doubled. We COULD run this experiment if we want lots of people to suffer. There's no need, though. It's already been done. Way back when minimum wages were new, they accidentally made the law apply to Haiti, doubling wages. That destroyed the Haitian lace industry (Google for it -- there's no trace).

If this is interesting, visit my blog at http://angry-economist.russnelson.com.

(posted 7310 days ago)

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