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Minimum Wage (Part C) - History February 20, 2015 8:00 AM | Tagged as gas lines

Other countries began minimum wage laws before the US, but in the 1930’s the movement came to the US. Americans today see these laws as an act of altruism for the poor. That was NOT the case when they began. The establishment of minimum wage laws was aimed at keeping jobs and industries in strong, highly populated states, and not allowing them to migrate to lower populated states with lower standards of living. It had nothing to do with altruism. It was bald-faced regional politics with the strong states keeping jobs from migrating to the smaller states.  It even had racial overtones, as noted in the following online article.

Nonetheless, minimum wage laws and price controls, in general, have proliferated and always resulting in shortages of jobs. Other examples of price controls yielding shortages are:

  • Consider the gas lines of the 1970’s when OPEC established an embargo on oil. The price of gas at the pump rose dramatically. The federal government reacted by imposing a price ceiling below that new equilibrium price, instantly creating a shortage of gasoline. The lines and the rationing instantly began.
  • In 2001, California State lawmakers imposed a ceiling on the price of electricity in the new market the same lawmakers created. In no time, there were shortages of “juice” and brownouts rolled through California until the market was allowed to work again.
  • Rent control by municipalities, such as NYC and Santa Monica, CA, leads to a shortage of apartments for rent. It also leads to forcing those in low rent housing to not have the opportunity to move.
  • Forcing the cost of money below the natural market price by the Fed has led to a shortage of credit since 2008.

When governments manipulate markets, black markets are formed.  The shortages are reduced by black markets which are just free markets, but are illegal. So don’t be surprised when you hear of employers cheating and hiring people below the minimum wage…perhaps, illegal immigrants who can’t squawk to the government. That is a black market doing its thing. 

During times of supply interruptions, governments are prone to establish price controls to avoid what they call “price gouging”.  There is no economic definition for this term. It is a political term to insight anger and false pride in those who have to pay higher prices when supply is low or demand high.

It may be no surprise that many economists know the correct minimum wage. It should be changed to ZERO. Why have price fixing in the unskilled labor market, in the first place? Of course, good economics is not necessarily good politics. Neither of the major parties will get around to abolishing the minimum wage any time soon.

[This three-part series on minimum wage laws breaks from the practice of referring to specific articles from the WSJ's opinion pages. This series will become a reference to when it becomes available in late 2015.]

Posted By The Biz Bucks Guy
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