For your paper on “The Minimum Wage”

First Published: 2000-03-08

Several students from the College of the Bahamas have approached the Institute for Economic Freedom for information on the Bahamian economy. Inquiries are welcomed and we have responded to one student as follows:

For your paper on “The Minimum Wage”

All behaviour has consequences – public policy is the same. Neither individual – nor group behaviour in the application of any policy is likely to achieve the outcome envisioned when first described.

The Minimum Wage is just another idealistic assumption that if you mandate a number – there will be no low wage earners. A “living wage” is the term used by proponents of the minimum wage for its compassionate appeal but meaningless as a measure for income requirements. The “social engineers” promise it will guarantee a “standard of living”. Such terms are irrelevant in determining the value of labour.

A careful and object analysis of how wages are determined, the effects of controls and changes in employment rates of both quantity and quality reveals that the minimum wage does not achieve the outcome politicians promise. It remains an inescapable fact of economic life that no legislature can make a person worth a certain amount by simply making it illegal for employers to pay him any less.

The “minimum wage” therefore must be seen for what it is; a political tool to fool voters into believing they are “doing something for their constituents”.

As you will see from the enclosed materials, the policy harms the very people it purports to help. Of the numerous studies on the Minimum Wage all show that it causes unemployment – particularly to the young and unskilled.

It is a violation of economic freedom – which is the best policy to maximize employment and improve standards of living. This statement is well supported by factual evidence – not idealistic gobledegook.

Walter Williams told a little story illustrative of economic planning – or industrial planning – what is referred to above as “social engineering”.

“Economic and industrial planning is nothing more than forcible superseding of somebody else-s plan by the powerful elite. For example, I may plan to buy a Honda motorcycle, but the powerful supersede those plans through tariffs and quotas because they have decided a Harley Davidson is preferable. My daughter might plan to work for the hardware store for $2 and hour; I agree, and her mother agrees with it; she agrees with it; and the hardware store owner agrees with it. But the powerful elite directs that the plan be cancelled unless she gets $3.00 an hour. That-s economic planning. It is the forcible superseding of somebody else-s plan by the powerful elite.”

WALTER WILLIAMS – speaking at St Vincent College February 5th 1991.

Enclosed is a research paper by Dr. Marc Shaw of the Fraser Institute – The Economics of Minimum Wage Laws. Additional reference material as listed below. Further information is available at www.iefbahamas.org on Minimum Wage and other Bahamian policy issues.

Good luck
THE INSTITUTE FOR ECONOMIC FREEDOM

Help support The Nassau Institute