Topic: Economics
The National Minimum Wage Why the 'NMW' hurts the poor rather than helping them.by Edward Townes
(libertarian)
Sunday, December 30, 2007
The National Minimum Wage (NMW from here on) is a paragon of government programs which do precisely the opposite of what it says on the tin. It is based on a surprising amount of economic ignorance, not that I didn't think the government was capable of stupidity, but because it is something even mainstream economics understands to be stupid. I believe this lie is perpetrated mainly by Trade Unions, which are effectively criminal gangs and decisively do not serve the interests of either the workers or the employers. Trade unions support the NMW mainly because it provides them with purpose and because it appeals to their soft hearts and soft brains.
As you probably know, the NMW is a price floor on wages. The notion is that we don't want employed people getting paid below a certain amount because we don't think they can live on it. Nevermind that people enter into an employment contract voluntarily, and any immobility in the labour market is almost definitely down to government intervention anyway. I'm going to explain to you why it even fails to achieve what it pretends it does; help the poorest members of society.
Here is a graph I just made on photoshop :)
Pe and Qe donate the market equilibrium price and quantity of labour. With the red lines I have introduced a price floor to show you what happens when you set a NMW. As you can see, the Demand and Supply curves no longer meet. There is a deficit of demand, and a surplus of supply. In the labour market this is called unemployment.
Now, I'm not saying that ALL unemployment is because of the NMW, but I can guarantee you that a very significant proportion is.
And thus, the NMW, instead of helping the poor, actually increases unemployment. The sad fact is that it only takes one bloody diagram to explain why.
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