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DITMo: Minimum Wage WARNING to States

Subsistence, livable wage and minimum wage as monetary terms differ. A person working forty hours weekly supporting an average household should set the minimum bar in the free market for wages enough to provide for that household. This is a livable wage.

It seems that a free market natural minimum guideline for a forty hour worker would approximate a basic living standard for that worker. To the degree that it does, there is no dislocation in using that as a baseline for a livable wage. Contrast this to the term minimum wage which is a mechanism for valuing a unit of time of an entry level worker disassociated from supporting a household.

This short article highlights some missing economic principles in the political debate on the minimum wage:

To the degree that the market establishes a minimum pay that applies mostly to entry positions, there will be no effect of declaring a minimum wage in that locality to the degree it is equivalent to what the free market establishes.

There cannot be a universal wage set that will not cause dislocation to the labor market precisely because localities are not homogeneous economically. When the minimum wage widely differs from what price the market would set in that locality the adverse consequences will be lower employment and in turn, lower production. Standards of living in one place cannot be imposed on other places.

For instance, in the U.S. in the 30s child labor was commonplace. If the U.S. attempted to impose today’s standards on 1930s America it would have resulted in mass starvation and continued economic depression. This is why it is not wrong for countries entering the “International Product Lifecycle,” like India, from developing out of that stage into a more developed stage who now exports their low wage jobs to other LDCs (less developed nations).

Therefore, a minimum universal wage – to the degree it is in disparity with the market price of entry wages – will cause adverse consequences that will reverberate through the labor market. We don’t need a Cato Institute study.

Consider that an employee that has risen on the last year or two to $15.00 and another who rose to $20 as assistant manager. When the minimum statutory wage increases to equate or just fall just below their wage they will be underpaid according to the universal standard of minimum wage. Consider all the union and other wage contracts that use the minimum wage as a baseline to determine other wages. Minimum wage then changes the ratio of an underlying gear that does nothing but cause dislocation on existing worker pay and increases prices thereby neutralizing higher minimum wage pay (to the degree the minimum wage differs from the free market wage set in that locality).

Whenever the market is interceded from establishing prices there will be dislocation and adverse consequences. Labor market prices (as well as other products and services) should be disintermediated from government.

Pj de Marigny
DITMo Capital
pj@DITMoAnalytics.com

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