Friday, February 15, 2013

Price of Labor

Let's do a little thought experiment.  To simplify we will limit the market to two choices.

We visit the Government Grocery Store # 66.

They have two types of steaks for sale.  Chuck Steak is $4.59 per pound.  A fair value. The cut is a little tough and has a lot of connective tissue and fat. But with some work it can be made tasty.

The other variety is Rib Eye.  It's tender and succulent. It requires little beyond a hot grill.  It's ready to go.  Many consider it a good price at $11.99 per pound.

Enter the Central Planners and chief butcher, Barry.  He thinks it's just unfair that Chuck Steak is only getting half of what Rib Eye gets.  He issues a governmental edict that henceforth the minimum price for steak is now $11.99.

Chuck Steak is immensely honored and proud.  It's going to get $11.99 per pound just like Rib Eye.

But a funny thing happens.  Customers who go to the store and see that Chuck Steak now costs $11.99 decide to go ahead and buy the Rib Eye.   Government Grocery Store # 66 can't seem to sell any Chuck Steak.

The store's managing bureaucrat confers with the chief butcher.  Not to worry says Barry.  Sooner or later we will run out of Rib Eye and Chuck will get what it deserves. 

But it never happens.  There is a near endless supply of Rib Eye.

Price controls by government never work and they never learn.  Minimum wage is a price control.  It forces people to pay more for minimal labor.  They may as well hire more competent workers. 

Many teens and others have minimal skills.  A beginning wage is often a training wage.  They are paid what they are actually worth while they learn skills like showing up on time, and dealing with the public.

That's why the Black teenage unemployment rate is around 30%.  If an employer has to pay $9.00 or more per hour, the employer  cannot afford to train.  There is a near endless supply of college grads and experienced workers looking for work.  The real unemployment rate is more than 11%.

Raising the minimum wage sounds so nice and compassionate.  The effect is to increase the unemployment of minimum workers.  And that's a shame.

And not only does the unemployment of poor minimally qualified people go up, so does the cost of their burger (and other stuff). A part of what you lay on the counter for that burger goes to pay the crew.  If crew wage cost goes up, your burger cost goes up.

It's a typical Dem program - everybody comes out worse. 

2 comments:

  1. "Raising the minimum wage sounds so nice and compassionate."

    Hey, that's Liberalism. Their plans/programs almost always sound good, especially to those who suffer from cognitive challenges. Their plans/programs also, almost always, result in: massive cost overruns; gross inefficieny, loss of personal independance and self-esteem......on and on. Hey, but thay sure sound good! If anyone doubts this I invite you to check out the "Debt Clock": http://www.usdebtclock.org/ .

    ReplyDelete
  2. Hey Gene,

    What ever happened to those Liberal idiots who used to respond to our observaions? Do you think that they may have grown-up?

    ReplyDelete

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