A Problem With the Minimum Wage Law
In this essay, I will assume that the minimum wage law is, in general, a good thing. In other words, I am going to ignore the complaints from economists concerning the minimum wage. With this in mind, there is one problem that I see with the minimum wage law. That problem is the fact that the minimum wage law is universally applied.
The problem with the minimum wage law is that it is universally applied. This is where the problem in the minimum wage law exists, given the above assumption. The problem is that the minimum wage does not take into effect the varying costs of living across an area. So, in areas where there is a lower cost of living, the minimum wage law may induce an unnecessary higher labor cost in that particular. This acts to impose higher prices within that area than what the market would have dictated. (This would still be true with a minimum wage that is adjusted according to the cost of living index.) Consequently, this would negatively affect every living in that particular area since they would be facing higher prices, and thus they see a lower indifference curve than what they would have seen. This ultimately reduces each person’s utility.
On the other hand, in areas where there is a higher cost of living, the minimum wage law may be too low to provide an adequate standard of living. Although this would benefit everyone else not making minimum, since they would be facing lower prices, this would hurt those making the minimum wage. This is because they would not have the same purchasing power that they otherwise would have had if the minimum wage was correctly adjusted for the cost of living index.
Given that the minimum wage law is, generally, a good policy, it falls short on the fact that it is not set to match the cost of living in differing areas. It either induces a higher cost on employers in areas with a lower cost of living or it doesn't provide the necessary income, in areas where the cost of living is high, for those making the minimum wage to meet a standard of living considered adequate.
The problem with the minimum wage law is that it is universally applied. This is where the problem in the minimum wage law exists, given the above assumption. The problem is that the minimum wage does not take into effect the varying costs of living across an area. So, in areas where there is a lower cost of living, the minimum wage law may induce an unnecessary higher labor cost in that particular. This acts to impose higher prices within that area than what the market would have dictated. (This would still be true with a minimum wage that is adjusted according to the cost of living index.) Consequently, this would negatively affect every living in that particular area since they would be facing higher prices, and thus they see a lower indifference curve than what they would have seen. This ultimately reduces each person’s utility.
On the other hand, in areas where there is a higher cost of living, the minimum wage law may be too low to provide an adequate standard of living. Although this would benefit everyone else not making minimum, since they would be facing lower prices, this would hurt those making the minimum wage. This is because they would not have the same purchasing power that they otherwise would have had if the minimum wage was correctly adjusted for the cost of living index.
Given that the minimum wage law is, generally, a good policy, it falls short on the fact that it is not set to match the cost of living in differing areas. It either induces a higher cost on employers in areas with a lower cost of living or it doesn't provide the necessary income, in areas where the cost of living is high, for those making the minimum wage to meet a standard of living considered adequate.
posted by Rich at 4:20 PM
1 Comments:
Yep, very true. So, it becomes a matter of the lesser of two evils in the end. But isn't everything when it comes to economics and politics. Damned if you do, damned if you don't! So, what do we do? Continue on with the cost of living rising but not the minimum wage? Or raise the minimum wage and face it's adverse effects? I don't have an answer to that, which is why I avoid politics, but I will say that I think we need to move in a direction that benefits the educated persons vs. the undereducated. That's a tough one, because I am all for the underpriviledged, but given the choice, I think we need to encourage education. Do or die. That's what it's coming to.
Karli
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