More on the Minimum Wage Controversy

So, in response to our class discussion the other day on the pros and cons of raising the minimum wage, I thought it would be good to look at the issue from an economic perspective as economics are the real issue in question with this topic.

Here is the link to the article:
http://www.econlib.org/library/Enc/MinimumWages.html

This article basically goes into detail about the negative effects of raising the minimum wage and, although it would have been nice to see some of economic charts and graphs, it does present some actual cases of the effects of raising the minimum wage. The article agreed with what Professor Prenkert said in class about the largest targetted class being unskilled teenage workers. But if that is only the case then I really don't think it sounds justifiable to keep the wages of so many people so low so that some teenagers can keep their part time jobs. As one may assume though, the government is not THAT concerned with part time jobs for teenagers and there are some other real cons to raising the minimum wage that the article brings up.
The first example given was from Australia:

“when, in 1921, the federal court institutionalized a real minimum wage for unskilled men. The court set the wage by estimating what employees needed, while ignoring what employers could afford to pay. As a result unskilled workers were priced out of the market. These laborers could find work only in occupations not covered by the law or with employers willing to break it. Aggressive reporting of violations by vigilant unions made evasion difficult, and the historical record shows that unemployment remained a particular problem for unskilled laborers throughout the rest of the decade.”

The next example is pretty interesting because it relates to the law where “In 1923 the U.S. Supreme Court, in Adkins v. Children's Hospital, ruled that the minimum wage law was simple price-fixing and an unreasonable infringement on individuals' freedom to determine the price at which they would sell their services.” This actually found the institution of the minimum wage not reasonable in the eyes of the law and seems to suggest that this law has been in effect, without adherence, up to the present day. This case is interesting because the employees who were to increase their wages because of the new law were actually the ones who sued to stop the law because they were fired when the hospital couldn’t afford to keep them employed. A similar case happened in 1990 with the Salvation Army.

One more thing I wanted to point out from the article because the point was also brought up in class and was a very good one, was the effect of different areas (in class compared was Chicago and some arbitrary southern Illinois town) with the flat increase of a minimum wage:

“Estimates of the overall effect of minimum wage increases also tend to blur the regional and sectoral shifts that average together to produce the national result. A federal minimum wage of $4.25 an hour may have little effect in a large city where almost everyone earns more. But it may cause greater unemployment in a rural area where it substantially exceeds the prevailing wage. Regional and sectoral studies leave little doubt that substantial increases in the minimum in areas with lower wages can cause industries to shrink and can inhibit job creation. The growth of the textile industry in the South, for example, was propelled by low wages. Had the federal minimum wage been set at the wage earned by northern workers, the expansion might never have occurred.”