About these ads

Minimum Wages and Economics 101

obama-minimum-wage

“Nobody who works full-time in America should have to live in poverty. I’m going to keep on making the case and fighting for the fact that we need to raise our minimum wage, because right now it’s in lower terms than it was when Ronald Reagan took office.”

Now that the media has successfully diverted national attention away from their messiah’s ever-growing list of “phony” scandals (including Benghazi, IRS, NSA, AP, and Fast & Furious — many of which are clear-cut signs of the oncoming police state that the ever-growing number of zombies in our nation fail to recognize), he has turned his sights to gun grabbing and the minimum wage (read his typical sycophantic remarks here).

Of course, his attempt to hike the minimum wage is merely another attempt to divert the national discussion, so I’ll be brief in debunking his theories that are once again heavy in ideology but light in facts.

Labor and wages can be represented by a simple supply and demand curve (a concept covered in the most basic of economics courses).  Consider the following chart that describes a basic labor supply and demand:

Supply-and-Demand2

The blue line represents the number of workers available to work at the current wage price, while the red line represents the wages employers are willing to pay at any given level of labor available.

If the availability of labor is incredibly low, employers are willing to pay extremely high wages to nab those few employees.  However, if we have plenty of workers available, employers aren’t willing to pay as much (“Why should I give you $10/hour when I can hire any Joe Schmo off the street?”).

Where the red and blue lines cross is the “equilibrium point” in which all workers have been hired at a wage that satisfies both employee and employer.  Any scenario that does not fall onto the equilibrium point suffers from “market failure”, a non-optimal utilization of all available resources.

Now let’s examine the same graph with a minimum wage restriction.  Effectively, we’ll be setting a “price floor”, eliminating all scenarios below a predetermined horizontal line.

Min-PayNow we have a “minimum wage” line that rests ignorantly above the “equilibrium wage”.  Now our available supply rests at point “B” — lots of people want to work at such incredible wages (thank you so much, Dear Leader!) — but employers only want to hire the quantity of workers at point “A”.

See the triangle formed by the supply and demand lines and the new minimum wage line?  That represents two things:  All the workers who are now out of work as well as all the dollars that could be used to hire those workers.  In case it’s not clear, here’s the same graph with the inefficiency triangle filled in:

Min-Pay-with-grayWhoops.  Our incredible plan to “pull people out of poverty” is now weakening employers by stripping them of their ability to hire enough employees.  And we’re throwing more people into the poverty pool by preventing them from joining in all the employment fun.

Like I said, the concept is incredibly simple.  But it’s made difficult when your narcissism and radical ideology prevent you from using the rational portion of your brain.

More info:  The U.S. Government Should Eliminate Wages in Order to Increase Employment

About these ads


Categories: Barack Obama, Economics

Tags: , , , , , , , , , , , , , , ,

4 replies

  1. Apart from in a few exceptional cases – if the price of something is artificially increased, demand for it goes down.

    Labor is no exception to this rule.

  2. What good is a minimum wage if government can devalue the dollars you earn? Consider that Obama and his Federal Reserve have printed trillions of dollars. Traders have front-runned it and prices for commodities have spiked. If you were earning $8 an hour when Obama got elected, can it buy the same amount of goods today? When most of your daily essentials like food and gas have doubled, that is actually a 50% pay cut. Obama is the one that hurt the low income workers the most.

    • Exactly — the purchasing power of a dollar must be taken into account. When it’s continually diminished by inflation and destructive policies, it doesn’t matter how much one has if it’s worthless.

      It’s ironic — yet unsurprising — that Obama’s policies are the very ones that will hurt low income workers the most.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 4,225 other followers

%d bloggers like this: