Friday, December 26, 2008

Curb Minimum Wage

For the US economy to start growing again, businesses must see new profit opportunities and must subsequently invest in these opportunities. One way to increase the number of available profit opportunities is to reduce or remove minimum wage requirements. While it may be a politically unpopular move, removing the minimum wage would encourage hiring, reduce unemployment and increase business profits (and thus incentives for expansion) through this downturn.

When minimum wage rates are set above what the market rates would ordinarily pay, costs per worker are held artificially high. This keeps businesses from hiring workers they otherwise would, thus reducing hiring and keeping unemployment levels at artificially high levels.

When costs are artificially higher than they otherwise would be, certain profitable projects are no longer profitable, and otherwise fruitful investments are not made as a result. The economy as a whole thus grows at a slower rate than it otherwise would.

While the benefits of removing minimum wage are felt by most of society, those who currently receive minimum wage (but would not otherwise) would feel pain in an immediate removal of minimum wage. A gradual announced phase-out of the minimum wage for workers who are currently employed at that rate is the best method of reducing the impact on these workers. This would allow current workers to plan ahead and would encourage them to increase their productive value through education, while at the same time allowing businesses and the unemployed to benefit from new hires at a market rate.


Anonymous said...

From a rational economic perspective, this is fine and dandy. But a willing government would simply be kicked out of office, and a less Machiavellian one would replace it.
The time lag for this policy to work probably wouldn't be short enough to make people suck it up.

Anonymous said...

The notion that people would get better education is absurd. The economic incentive is there right now, alas rational beings are not.

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