Monday, November 17, 2014

Subsidizing Being Unskilled

These days if you listen to people talk long enough the topic will always turn to a minimum “living wage”. This of course is the minimum wage that anyone who works full time should receive, presuming that any skill level or no skill level at all entitles a person to live a comfortable life.

Perhaps not too surprisingly I have a problem with this idea and it stems from two of the basic, irrefutable, and iron laws of economics. The two are actually coupled, but for the purpose of explanation I have separated them here.

Firstly, if you want the economy to produce less of something then the easiest way to do that is to place a tax on it. Tobacco products are a perfect example of this. Fussbudgets in the government have decided that even though the hazards of using tobacco products are universally known they, the fussbudgets, are wise enough to know what’s best for everyone and that they will drive down consumption by increasing the taxes levied against it, and eventually, when the number of smokers is small enough, institute an outright ban. Likewise with foreign agricultural products like sugar which can be produced and sold at lower prices than those grown domestically. Place a tax on them and people will be forced to buy more domestic products, such as sugar. So the rule is: if you want less of something, place a tax on it.

The second part of the hard rule of economics is that if you want more of something you subsidize it. That is you favor its production either by direct government payments, as with farm subsidies which guarantee that farmers will receive a minimum price for their crops, like sugar, and corn ethanol, and other things like solar and wind generated electricity. The market prices of these products are not high enough to support their production, but again, someone in government has decided that they represent the combined wisdom of the three hundred million people who live in the United States. So the rule is: if you want more of something, subsidize it.

What has this got to do with a “living” minimum wage? Employers buy skills. Those who have learned valuable skills and have gained experience are sought after and well compensated. Those who have few or no skills and no experience are not. According to the Bureau of Labor Statistics, in 2013 about twenty percent of the labor force between the ages of sixteen and twenty five were earning at or below the minimum wage. Above the age of twenty five, the number is reduced to less than three percent. This seems to indicate that the bulk of minimum wage earners are high school and college students who live at home with their parents, have few skills and work in a “buyers market” with many students and few jobs. Above the age of twenty five the number of people with few or no skills drops precipitously. The fact of the matter is that no matter how tragic the situation is made out to be or how many heart rending anecdotal stories TV producers turn into four minute spots for the local news, there just aren’t that many people over the age of twenty five with few or no skills earning the minimum wage. The way it works is that you get a job when you have few proven skills and in the course of performing that job you gain skills and experience that in turn make it possible for an employer to pay you more for them.

Requiring employers to pay more for few or no skills or experience is subsidizing that condition. It is guaranteeing a higher price for something that the market doesn’t want to buy, that being low skilled workers. It makes the condition of being under skilled and inexperienced less undesirable and will inevitably result in more people who are in that condition. (See: The second part of the hard rule of economics)

But that’s just what an average guy thinks.

No comments:

Post a Comment