Once
upon a time in French Indochina, there was a rat problem, so the authorities
offered a bounty for each rat caught and handed in. Unfortunately, this
worsened the problem because the people were now incentivised to create rat
farms. And so ideas that may sound good at first can lead to the opposite
result intended.
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ABC News
27 March 2013
The Australian Council of Trade Unions is pushing for a $30 a
week increase to the minimum wage.
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"Minimum
wage law" is a misnomer. The law cannot force someone to be hired in the
first place, so in reality, the true minimum wage is irrevocably $0/hr.
Therefore, minimum wage law does not so much ensure more money to society's
poorest as it does outlaw all Australian jobs paying between $0.01/hr and
$15.96/hr, that people could have otherwise freely entered into. When the state
mandates a price floor for labour above the market equilibrium, supply become
underutilised and deadweight loss ensues. Unemployment rises, with
disproportionate preference towards the most vulnerable (this is why current
laws allow lower wages for young workers, trainees, and workers with a
disability).
As a
parallel, consider some effects of varying the minimum wage throughout the
week. The small business owner loses because they cannot afford to pay the
weekend penalty rate. The worker who wanted to work on the weekend for less
than the penalty rate loses because such employment is deemed illegal. The
consumer loses because the business is therefore closed on weekends. If the
above three main parties concerned are losing, who then is agitating for such
legislation? By reducing the number of non-illegal jobs, the unions win by
increasing the bargaining power of their own members.
