Economic Idiots
I’m convince a large portion of the U.S. population has no grasp of basic economics, don’t bother to think through the cause and effect of attempts to control prices, and believe the lies they hear from their so-called leaders without questioning the motivations of those political animals.
We have just learned that unemployment jumped dramatically… from 5.0% to 5.5% from April to May of this year. Many politicians will make further hay of this statistic. But why did it happen in the first place? What really occurred?
First, most of the jump in unemployment can be attributed to teens/youth. Many are out of school for the summer and can’t find jobs. Why not? Having a lot of young workers dump on the market for summer happens every year! What’s different this year?
Last year, new laws were passed and the minimum wage was increased 14% to $5.85 per hour… and is scheduled to increase again in July to $6.55 (a 21% increase!). What happens when prices go up? Demand goes down. The price of entry-level labor went up, and jobs that were once available at the lower price are no longer available.
To many people think an employer is forced to pay whatever hourly rate is mandated by law. Not so. Employers will pay whatever rate makes good economic sense. If more productivity is not gained by paying a worker, then the job can be eliminated… or it can be accomplished in another way… or the existing workers just have to pick up the slack.
A lot of America’s employers are small businesses, though… and many are just mom-and-pop operations. If the price of temporary labor (summer job) is too high, rather than hiring a kid they’ll just do the job themselves.
To add insult to injury, the minimum wage is scheduled to increase AGAIN in Jul, 2009, to $7.25 (a 10+% increase!!). Do you suppose the employment market will be helped when that happens? Mark you calendars… if you can take bets from someone about next year’s headlines, do it! Easy money.
Why won’t price controls work?
Look at it this way:
If a minimum wage of $6.55 is good because it gives the worker more money to pay their bills, why not make the minimum wage, say, $50 per hour? Wouldn’t that be good? Maybe in theory, but a lot of jobs simply cannot exist at that high rate… employers would be losing a lot of money for every hour they paid that worker. You cannot force employers to pay unrealistic wage rates… it is not a sustainable model.
Likewise, if employers decided to only pay, say, $1 per hour for a job… workers would not want the job. It wouldn’t give them enough value for the time they spent on the job! And, similarly, you cannot force people to work at such rates.
Our free market system should be the determiner of prices… whether products being sold or wages being paid. If an employer cannot find enough workers to produce their widgets at one rate of pay, they’ll either increase the rate if the price of their widgets will support it. But, if they can’t sell enough widgets at a high enough price to support WHATEVER wage they pay their workers, they’ll just not make the widgets. Widgets will not be available on the market.
The bottom line is this: prices (of products or wages) depend on value judgments on BOTH sides of the economic fence… consumer vs. producer, employer vs. employee. They cannot be dictated (that’s been tried and the U.S.S.R. no longer exists).
The simple fact is: the value of a low-skilled, inexperienced, less educated, less productive workers is lower. All other things being equal, they do not DESERVE to be paid more. Just as we don’t have doctors flipping hamburgers, we don’t have teenagers doing surgery.
If the government wants to do something REAL to allow people to earn more, then it should educate them better and give them more marketable skills. EVEN THEN, teenagers should rightfully be paid relatively less than more experienced, more skilled workers.
