More on the Minimum Wage and Obama’s attempted Christmas tree tax

I should think if I make a post on the minimum wage, I should acknowledge the most common argument for it. It’s not that the minimum wage can’t raise wages, but rather that it generally can’t do so without causing unemployment.

In a free and open market, wages tend toward the workers’ respective MRPs (what they contribute). If a worker’s wage is less than their MRP, that means their employer is receiving a profit; these profits invite more firms in until the profits are non-existent. Therefore profits tend toward zero while wages tend toward MRP.

Obviously though, there is a possibility that a worker’s wage will be lower than their MRP. If the government institutes a minimum wage of 7 dollars, for example, there are people whose wages can be raised, perhaps if they’re earning $6.50 while being able to produce $7.50. Meanwhile though, all workers unable to produce $7.00 will be unemployed.

The problem with the minimum wage is that, in addition to unemploying these specific workers, is that it will reduce the previously mentioned tendency of wages tending toward MRP. This is because the minimum wage is a harmful regulation. Businesses will be unable to hire specific people that would help contribute to a successful business. By mandating that employers must pay all employees a certain amount, certain employees will be not be hire-able. New businesses will have tougher start-ups, and therefore the tendency for wages to equal MRP will be diminished. I call this the interventionist paradox. An imposition of the minimum wage is created (supposedly) to raise wages, but ends up causing unemployment and lower wages.

Anyway, found this hilarious post over at the EPJ about the Agricultural Department trying to institute a 15-cent charge on Christmas trees. Apparently the reason for the tax is to run a ““program of promotion, research, evaluation, and information designed to strengthen the Christmas tree industry’s position in the marketplace; maintain and expend existing markets for Christmas trees; and to carry out programs, plans, and projects designed to provide maximum benefits to the Christmas tree industry” (7 CFR 1214.46(n)).  And the program of “information” is to include efforts to “enhance the image of Christmas trees and the Christmas tree industry in the United States””. It’s apparently now being delayed, but it’s hilarious nevertheless.

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Posted on November 11, 2011, in Economics, Politics and tagged , , . Bookmark the permalink. 6 Comments.

  1. What do you propose to do about minimum wage then? Lower it so that there are more employed? Have no minimum wage at all and let the free market do what it will?

    • Have no minimum wage at all and let the free market do what it will. I wouldn’t exactly state it like this though because it makes the free market sound like something strange and artificial. The free market is simply peaceful cooperation. Intervention is aggressive force by the State not allowing peaceful cooperation to take place. This intervention, as I have shown (at least in the case of the minimum wage), has the opposite of the supposedly intended effect. Rather than raising wages for all, it raises wages for some, unemploys others, and then has an additional effect that leads to lower wages for those able to get jobs (interventionist paradox). So yes, I’d competely get rid of it, morally, because it’s violence, and economically, because it worsens social utility.

  2. This is a pretty libertarian perspective, and I would like to bring up the point that the minimum wage is made for a reason. At the end of the day, a company’s goal is to make at least a normal profit, if not more money. To make money, it ideally lowers costs because increasing prices would lead to lower demand etc. Wages are a cost. Minimum wage is a price floor on labor, which I agree does create unemployment. However, this minimum wage is to help quality of life so to speak. If you ever watched Morgan Spurlock’s (creator of Supersize Me) documentary on living just one month on minimum wage, you can see that it is impossible for a family of two both working minimum wage jobs to live comfortably and healthily JUST on minimum wage. So imagine what families have to do if this price floor were removed and wages returned to the equilibrium price set by the free market.
    I am sure you will counter this with the idea that if the price gets too low, there will be fewer willing employees, and so the price would naturally go back up. I want to bring up this point, without being racist that, everyday there are many foreign generally Latin American people coming into this country that increase the supply of willing employees. To them, less than minimum wage is a lot of money, and perhaps it is kind of a slippery slope, but I think that getting rid of the minimum wage would just increase the exploitation of these peoples and do very little for unemployment.

    • Yeah, I’m pretty libertarian! 😀

      Anyway, that brings back the point that if you have a minimum wage, people are living off of $0.00/hr rather than maybe $5.00/hr. Obviously, the latter is easier to live off of.

      Another point I should bring up is that if a company is making profits by paying workers low wages, why not just start your own business and bid up their wages? The answer (which probably came to your mind immediately) is that it’s not very easy to start a business. It takes talent and entrepreneurial ability. Not everyone is built to be an entrepreneur. But regulations (currently 80,000 pages of regulations in the US) like the minimum wage make this job even harder.

  1. Pingback: The Minimum Wage Does Indeed Cause Unemployment « The Interventionist Paradox

  2. Pingback: Archive: Minimum Wage | The Interventionist Paradox

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