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Raising the minimum wage solves no issues

By Joseph Shen
web posted November 28, 2016

John Komlos is a professor of economics and economic history at the University of Munich. He’s written a textbook on economics and has even taught at Harvard, Duke, and the University of Vienna.

Recently he published an article on PBS Newshour on why raising the minimum wage is a good idea. He makes three main points:

  1. The minimum wage of the US is well below that of other advanced countries. He claims that an average person will be lucky enough to take $225 a week or $12000 a year, which is not enough to live on.
  2. Raising the minimum wage will not increase the number of jobless people. He claims there is no evidence to back this up.
  3. Raising the minimum wage will lessen the gap between the top 1% of the population and the lower working class. He claims that most of the profits generated by the economy go to the top 1%.

Using these three main points, Komlos argues that raising the minimum wage will be beneficial to the US economy. I will attempt to address these three main points and prove that raising the minimum wage will harm the US economy.

First of all, the average US worker earns far more than $12000 a year. The average US GDP per capita is an astonishing $53000.  According to the Forbes, only 4.5% of Americans are actually living below the poverty line, and every year the number is decreasing. The real GDP per capita has been steadily increasing annually due to new innovations and technology every year, causing more and more Americans to climb out of poverty annually. Thus Komlos’ argument that the average US worker takes home only $12000 a year cannot be shown to be true and only applies to a small minority of the population.

Second, Komlos claims that increasing the minimum wage will not affect the number of jobs in the economy. He states that there is no evidence to back this fact. However, economics teaches that when a price floor, or minimum wage, is set in the market for work, there will be a surplus of workers. More workers are willing to apply for the job than employers to hire them. This causes unemployment. Using economic analysis, setting a minimum wage above the equilibrium wage level will hurt employment. However, sometimes economic models do not apply in the real world. However data does support this fact, as shown here:

Min wage

Finally, Komlos claims that raising the minimum wage will lessen the gap between the "super rich" and the working class citizens. In fact, this is the reason many Americans believe we should raise the minimum wage. They seem to have a mental picture of a greedy capitalist sitting on a mountainload of money while shouting "Don’t Raise the Minimum Wage"

Cartoon

However, we must remember that these "greedy capitalists" were the ones who made jobs available in the first place. They are the innovators and they create the jobs. Raising the minimum wage will take away incentive for  entrepreneurs in the future from creating more jobs. 

In the end, remember that workers are willing to accept their wage. No one is forced to work, they work for particular employers only because they are willing to. I would only advocate a minimum wage in cases where employers form unions and thus remove a competitive market for labor. This will cause truly unfair working conditions and will require a minimum wage to correct. 

Throughout Dr. Komlos’ article, unfortunately he does not use very good economic analysis and makes several large mistakes. Raising the minimum wage is harmful to the economy for two main reasons: it causes unemployments and removes the incentive to innovate. It is better to simply leave the wage at the equillibrium price level. ESR

This is Joseph Shen’s first contribution to Enter Stage Right. © 2016 Joseph Shen

 

 

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