Wednesday, February 13, 2013

Why Raising the Minimum Wage Benefits Unions but not the Poor

From: Against Crony Capitalism

In this country we want everyone to prosper  This is the land of opportunity and seeing people succeed, especially people who may have come from modest means, is deeply gratifying to Americans. We like success. We like hard work. We like overcoming adversity. In contrast to many societies which do everything they can to restrict class mobility, we celebrate it.

It is because of this spirit that many people support raising the minimum wage. It stinks that in a land of plenty some should have little. Our natural instinct is to “do something about it.” To help make at least some modest success more possible. Unfortunately this instinct often gets us into trouble, especially when translated into public policy. We have already mentioned (in prior posts) why raising the minimum wage is a good example of  a policy which actually hurts those it is intended to help.

But it begs the question then, why, if increasing minimum wages actually hurts the poor, would those who say they advocate for the poor be for raising the minimum wage?

There are 2 main reasons.

One is just simple ignorance of the unintended consequences of such a policy. Like I said, it is natural t want to do something for those who have nothing. Increasing the minimum wage seems like a good idea. On the most basic level it appears to make sense. Even though it doesn’t when we really look at what happens.

So that’s one reason.

The other reason is that unions use a higher minimum wage to restrict competition for the jobs they are strong in. And this is the meat of the issue. If it costs too much to hire unskilled labor in the first place an employer is less likely to hire such a person and also train them thereby creating more competition for a certain job. (And competition potentially for the union.) If it’s too expensive to take the risk the employer might as well just stay with the union worker. It is a very stealthy way of protecting union interests and this is one of the main reasons why unions advocate for an increased minimum wages.

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