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Tuesday, 31 May 2011

Adam Smith: Arguments against having a minimum wage - comments welcome

The following was written by Sam Bowman of the Adam Smith Institute:

Bryan Caplan asks two questions to minimum wage supporters:

1. If the minimum wage is a good idea, shouldn't unpaid internships be illegal as well? If not, why not?

2. Name the main arguments in favour of the legality of unpaid internships. Aren't all of them equally good arguments for allowing people to work for wages greater than zero and less than the minimum wage?

I suspect that quite a few minimum wage supporters actually do oppose unpaid internships. The non-monetary returns from work – experience – are intangible, leading many to assume that one party is being exploited.

This is incorrect. Wages are a product of skills, so if an unpaid intern gains valuable skills they may be increasing their future earnings. Consider how competitive unpaid internships with financial companies are – getting one almost guarantees high earnings in the future.

To Bryan's questions, I would add two more:
3. An excess of supply in labour is usually called unemployment; minimum wage supporters deny that minimum wage laws create unemployment. What other goods can a price floor be set above the market price without creating an excess of supply?

4. Why don't you want minimum wage to be £20/hr, or £100/hr, or £1,000/hr? If wages can be set by government without any ill effects, why not solve most social problems simply by raising the minimum wage?
On the original blog, one comment started me thinking. The poorer paid people suffer with less jobs available because of the minimum wage. Companies offer jobs in each price bracket. If they are denied a lower bracket, they will change the structure of the job and get people a little brighter at the higher wage (minimum wage) to do a slightly more demanding job.

So the poorer and less able you are, the less jobs will be available to you. If companies can't restructure the job, there are plenty of workers in Africa and Asia both able to do the work, and willing to be exploited to do it.

Whereas, with Internships, the children from wealthier families - who are able to keep them - get a leg up in the world of business by using their school's gap period to learn in areas which will make them more valuable to an employer in the future.

We have to be thankful of the Socialists for helping the children of possible Tory families at the expense of the children of their own supporters.

There is another question to ask:

5. Why haven't the coalition ended, or tried to end, the minimum wage?

Which of the following two reasons is uppermost in their mind?

a, They like the situation to stay as it is, as their children benefit.

b, They are worried about upsetting the socialists.

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