Creating Jobs By Eliminating the Minimum Wage

by Michael Haberman on September 10, 2010 · 1 comment


I mentioned earlier in the week that the September 13th issue of Forbes had several articles that I wanted to post about. The second of these is an article entitled Scrap The Minimum Wage written by Art Carden, and assistant professor of economics and business at Rhodes College in Memphis, Tenn. Dr. Carden talks about his research that shows that “The effect of a minimum wage is a classic example of the law of unintended consequences. Minimum wages create unemployment: At above-market prices people want to supply more labor than employers wish to hire.” He goes on to suggest “Repealing the minimum wage would have two effects. First, it would create job opportunities, particularly for teenagers, and the chance to acquire experience today that can translate into higher future earnings. Second, it would send a powerful message to employer, employees and investors that they can hire and invest without fear of punishment.”
Carden makes the observation that the increase in the minimum wage from $5.15 per hour to $7.25 per had the effect of reducing employment 6.9% among teens, even more so for minority teens. Carden writes that repealing the minimum wage would create work and says “even a low-wage job in most cases beats no job and no wages.” He points out that “supporters of the minimum wage argue that earning $7.25 an hour makes a statement about the kind of society we live in.” But as he further states “Unfortunately, that statement amounts to: “We don’t understand how competitive markets work.” He concludes with “Minimum wage advocates might mean well, but other people without jobs can’t buy food, clothing and shelter with others’ good intentions.”
I like Carden’s idea. I have seen companies that cut down on staffing because of the increase in the mimimum wage. Just like overtime, minimum wage was put in place during a time of economic depression and recovery in order to “provide” for the welfare. I have also seen the marketplace work where companies did not pay minimum wage, even fast food companies, because the labor pool was too small and they were competing for workers.
However, I have a very hard time seeing this coming about. Just like anything else, especially govenment programs and mandates, if you provide it too long it becomes an entitlement. I don’t see any politician supporting getting rid of the minimum wage. I see the reverse. In today’s environment I actually see another minimum wage increase coming. Another 3 step process to get it to $10  per hour. It will most likely be called the Ted Kennedy Memorial Wage Increase or Wage Increase for Equity (WIFE). Let’s see how good of a futurist I may be…
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{ 1 comment… read it below or add one }

Art Carden September 11, 2010 at 10:13 am

Thanks for discussing my article! The print version omitted a cite to a report from the Employment Policies Institute that is linked in the online version. For more evidence, I've also put together a followup blog post that discusses my sources in more detail.

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