Goldilocks and the 3 wages

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Minimum wage is like Goldilocks, there are three ways you can set minimum wage: too low, too high, and just right.

Too low

This means it’s below the current labor costs, so it does nothing but remove flexibility. If the value of labor needs to drop, and it can’t because of legislation/regulation, unemployment goes up. So it has no negative impacts on employment (in the short term), but no positive impacts on salaries either: thus you did nothing good, but did a bad thing by injecting inflexibility (which makes downturns worse).

Too high

This means you’re taking money out of the business (increasing their cost basis for labor) and that money comes from somewhere. So if you raised the costs to the business, they must either:

  • (a) pass that on to consumers
  • (b) pass that on to investors (thus get less investment/growth/future jobs)
  • (c) take it out of workers benefits or get more work (to balance it out)
  • (d) cut back on profitability/health of the business (which slows growth and future jobs, and puts the whole endeavor at risk, and makes foreign investments more attractive).
  • Or some combination of “all of the above”. But money doesn’t grow on trees, it comes from somewhere — and all the alternatives are bad (costs): so do you want to be beaten with a stick, or with a belt? I opt for none-of-the-above.

“Just right”

This is a delusion, it's like Utopia or Zootopia, it just doesn't exist.

Even assuming a politicians could figure out the magic number that’s fair for any one worker (based on all the variables like location, situation, competition, etc.), it’s not going to apply to all the other businesses and workers in the area, let alone other areas, and it is not going to change over time so it would have an expiration date of weeks.

There’s no single number that can be optimum for two different states, cities, neighborhoods or people; there’s too many variables to ever get it right. Thus the only other choices are too low (political ploy), or too high (and hurt opportunities), or more often both at the same time (since minimum wage laws can impact high cost/high growth areas, and low growth depressed areas at the same time). The broader the minimum wage impact area (city, county, state, federal), the worse the minimum wage law will be (one-size-fits-all works worse, the more diverse the data set). To be efficient, the price of labor must be able to float based on demand/value in each area and situation -- if it can't, all the buttinsky's are doing is injecting inefficiency (waste) into the system.