The Minimum Wage Debate- part 2

minimumwage

A recent opinion article published on CNN’s website, written by Gov. Peter Shumlin and Gov. Dan Malloy expresses their support for a minimum wage increase. While on the surface, an increase in the minimum wage (or a minimum wage at all) would be beneficial to those minimum wage earning employees (or the economy, in general), there are some unintended consequences that need to be considered. In the article, there were 3 reasons cited for these two gentlemen’s support of a minimum wage increase. In this second part of the 3-part series, I will address the second point in their article. Note: You can read Part 1 at http://thelion.us/the-minmum-wage-debate-part-1/

Their second point is:

Two, it’s good for women. Women account for roughly two-thirds of workers whose incomes would rise by increasing the minimum wage to $10.10 an hour. These women currently work 40 hours a week to make just $14,500 a year. These women are our daughters, sisters and mothers who are often the only breadwinners in their families. Our country is in a stronger position when women are in a stronger economic position. We need to make that a reality.

First, this is a political statement and not a statement on how a minimum wage increase is economically viable or makes economic sense. It seems to me that no matter if the wage earner is a woman or man, black or white, born in the US or an immigrant, the same economic dynamics apply. Why is it a fact (as they imply) that “our country is in a stronger position when women are in a stronger economic position“. Does it matter who is entrenched in this low wage dilemma? No, it doesn’t. This seems to be a classic example of identity politics, where arguments are made concerning specific social groups in order to advance a political position. And I understand that this is probably the very intent of the writers of this article (two politicians) and therefore of great expectation. But, there is no value in solving the problem of the low wage dilemma by making this point. Higher wages are good for men, college students, and every other political identity group, not just for women.

Second, the statement that “these women are our daughters, sisters and mothers who are often the only breadwinners in their families” again has nothing to do with the economic viability of an arbitrary raised minimum wage. This is more of a commentary statement of our current society. The assumption is that these women are working because they have to, forced by family dynamics not only to earn an income to supplement another income, but also to act as the breadwinners. And as breadwinners, they are working a minimum wage job. If that is not a sad commentary of our society, I don’t know what is. But, what is the connection between this heart-stringed statement and the economic impact of a raised minimum wage?




Third, since there is no economic reasoning in this second point of the article, I will offer one. The thought that keeps coming to my mind is why are people (women in this case) working minimum wage jobs, while having to act as the breadwinner of the family. I can understand that there will be some people in this dilemma, but the article claims that “women account for roughly two-thirds of workers (that are working minimum wage jobs)” and that they “are often the only breadwinners in their families“. The implication is that there are many women in this position. Why are so many women relying on minimum wage jobs as the sole source of income to raise a family? Minimum wage jobs are not intended to be jobs expected to support a family. Why should business owners be burdened with the social responsibility of making bad up for past and current decisions of their employees. Businesses that employee workers at minimum wage do so for a reason. First, they are in an industry where the work is generally un-skilled labor and the workforce is easily expendable or replaceable. In other words, if their fry cook, making $7.25 an hour quits today, the business owner can reasonably expect to hire another person replace him the next day (or in a short period of time) for $7.25 an hour, without expending many resources. Second (as mentioned in part 1), businesses generally do not have stash of cash sitting around waiting to be spent. The capacity to absorb an arbitrarily raised payroll expense is something that has to be carefully considered by the business owner, and often times the requires measures that produce unintended consequences.

In the third and final rebuttal of the article written by Gov. Peter Shumlin and Gov. Dan Malloy, I will talk about the minimum wage I general, and how the minimum wage actually works contrary to unskilled laborers, in ways that you probably have never considered.

Please comment!

Note: You can read the original article written by by Gov. Peter Shumlin and Gov. Dan Malloy at http://www.cnn.com/2014/03/05/opinion/shumlin-governors-minimum-wage/.

Scarce Resources, which have Alternative Uses

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One of the most fundamental axioms to understand about economics is that resources are scarce. This means that there is no infinite abundance of resources in any market. There is only a limited amount (no matter how large that amount is) of any resource used to manufacture all goods and provide all services. There is nothing that is infinitely available and ready for our disposal. This truth explains why people have to make economic decisions and make other arrangements in response to the scarcity of these resources. In addition to resources being scarce, they also have alternative uses, which adds to the need to make wise economic decisions, lest there be waste. These ideas of scarcity and alternative usage is why the great economist Thomas Sowell himself defines economics as the study of scarce resources, which have alternative uses.

When I talk about scarcity, it is in the attempt to explain that of all the abundant raw materials, manufactured products or natural resources that are available on a world-wide scale, there is still some finite amount that can be used up until there is no more. This is scarcity on a macro level (globally). To further the point, if scarcity exists on a macro level, then it obviously exists on a micro level (locally). Because there is only a limited amount of all resources, human beings are forced into making wise economic decisions, both in manufacturing (on the supply side) and in consumption (on the demand side).




Take the example of trees. On a world-wide scale, trees are very abundant. No time soon is the world going to run out tress as a natural resource. However, if man were to begin a large-scale, world-wide effort in manufacturing that required a lot of wood in the process, it may eventually dwindle the supply of trees to a point that would affect the global access to this natural resource. For the foreseeable future, that is not likely to happen. On the other hand, this is likely to happen on a local scale. While there may be an abundance of trees globally, there are places in the world where trees are very scarce.

Take another example. Let’s say there is a small town and in that small town there is a small forest of trees that is currently not in use, other than to be enjoyed by the community in the form of camping and other recreational uses. The mayor of that small town understands that these are the only trees that the town “owns” and that they need to be very prudent about how they “use” these trees. You can start to see how scarcity is already a factor to be reckoned with. The mayor and most of the citizens of that town know that these trees are important, even if nothing is done with them at all. They are already being used and the economic decision may very well be just to keep using them as they are currently being used.

Along comes a man who proposed that the town use some of the trees that it already owns to construct a pavilion to enhance the recreational enjoyment of the forest area. Now, the mayor is presented with another economic decision that he and the citizens will need make prudently, because there is trade-off to be considered in this situation. If the trees are used for the pavilion project, then there are less trees available for the original recreational purpose. And it is because of the fact that the trees are not infinitely available for their disposal that this decision is necessary. The trees are scarce, in the sense that if they keep continuing to use them up, there will no longer be any trees at all for their use (short of planting new trees for use decades later).

As you can image, there are a number of decisions that can be made here by the mayor and the citizens. They may decide to do nothing at all, because they enjoy the trees more than they would enjoy the pavilion without the missing trees, knowing that they do not have an infinite amount of trees at their disposal and preserving the trees seem more important to them. Another economic decision that they can make is to go forward with the construction, because the added recreational opportunity of the pavilion is enough to make up for the missing trees, understanding the idea of scarcity. And maybe another decision that they can make is to keep the trees that they have and build the pavilion anyways. This economic decision would require buying wood from other sources (another town, perhaps) and using funds that they would otherwise be used for other purposes.

No matter the decision, each one involves factoring in the fact that the resources in question are not infinite and therefore, requires wisdom to avoid waste. After all, if the town had an infinite number of trees at its disposal, then each decision could be made strictly on the basis of preference. This is hardly, if never the case because of the idea of scarcity.

Please comment!