Minimum Wages, Market Wages, Employment, and Income The Midnight Economist



William R. Allen is an American economist, professor and author. He is known for his authorship of economic literature and has been a nationally syndicated radio commentator, a newspaper columnist, a Los Angeles television commentator and an occasional magazine essayist. From 1978 to 1992, more than 200 radio stations carried daily broadcasts of “The Midnight Economist” written and delivered by Allen.

Here is an excerpt of his broadcast on Minimum Wages, Market Wages, Employment, and Income followed by Questions for Thought and Discussion.

Minimum Wages, Market Wages, Employment, and Income

In a Word document (double-spaced, 12-point font, 1″ margins) address any of these Questions. (If you answer question #1, remember that this article was written when the minimum wage was around $4.50 – $5.00/hour) You may not have the exact answers, but you can certainly explore the ideas given what you know from the text and the class. I am mostly interested in your learning and iterative thinking about how changing the minimum wage impacts other economic events and effects our decisions.

Essays should be 250 words

Minimum Wages, Market Wages, Employment, and Income The Midnight Economist
“I’m so ticked off, I’d like to flee,” cried Mouse Karl.

“Sorry to hear of your tick and flee problem,” responded Mouse Adam. “What is the cruel cause of
your current crisis?”

“Poverty!” shouted Karl. “There is too much of it, and it could be so easily eliminated But the callous
fat-cat members of the community don’t care”

“There is poverty,” said Adam soberly, “even in this land of relative milk and honey. But I had not
supposed that it could be easily and quickly corrected simply by civilized concern.”

“Sometimes you seem innately inane,” snarled Karl with patient gentility. “People are poor because
of low income; most income is received as wages; higher wages thus mean greater income; so we can
get rid of poverty by sufficiently raising the legal minimum wage.”

“You do make it all seem pretty simple-minded,” replied Adam wryly. “Just what is a ‘sufficient’
increase in wages? Would a wage of around $5.50 an hour be ‘sufficient’? For a person working forty
hours a week for the entire year, that would mean an annual income of just over $11,000.”

“80 be bolder,” boldly suggested Karl. “Make the minimum hourly wage $6 or $7, which many
beginning and menial workers are already getting.”

“You call that bold?” chided Adam. “Make it $45 or $450 an hour!”

Karl twitched his tail nervously. “We have to be realistic,” he grudgingly suggested. “Not many would
be hired at wages that high.”

“Precisely,” confirmed Adam. “What is income to the worker is cost to the employer. It is not good for
one’s economic health-whether he be a consumer or a supplier-to pay more for something than it is
worth. The market value of labor services is determined by what the worker does, how well and
attractively he does it, and how many other workers are available to do the same thing. Unhappily, some
people are not in a position to offer labor services which the community values very highly. If government
then makes it illegal for those people to sell their services at low market prices, the services will not be
bought. Pegging wages above market levels reduces the already limited competitive powers of people
who are young, untrained, inexperienced, or otherwise disadvantaged. Pricing workers out of the labor
market-denying them both income and work experience-is a pretty peculiar anti-poverty program.”

Karl was crestfallen but no longer so confused. “Well,” he sighed, “if there is to be employment only
at market-determined wages, and if market wages reflect economic productivity, then evidently the only
way to raise wages is to increase productivity. We will live better only it we produce more. And we can
become more productive. But that will require much sense and commitment and investment-and time.
No politician’s quickie gimmick of market subversion will make us wealthy.”

Questions for Thought and Discussion:

1. Is the claim that raising the minimum wage to $6 or $7 and hour won’t reduce low skill employment
consistent with the claim that an even higher minimum wage would reduce low skill employment?

2. Why are the very lowest skilled workers the ones most likely to be harmed by an increase in the
minimum wage?

3. How could raising the minimum wage reduce on-the-job training for minimum wage workers, slowing
the growth in their wages over time?

4. Why might higher-paid, more skilled workers find a higher minimum wage for low-skill workers in the
same field in their own sell-interest?