Why Minimum Wage is Keeping You from Getting a Job

0:00My topic is why the minimum wage is keeping you from getting a job, but before I get into that subject, I'd like to engage in a commercial. And the commercial is to come to Loyola University, New Orleans, and study with me and my colleagues. If you haven't gotten one of these, we try to give them out there, James will show you where they are. From my point of view, the reason I want you to come study with me is I'm sick and tired of getting high school students who hate capitalism, who are socialists and love the government, and it takes me weeks to get them out of that and onto the right path of pro-free enterprise. From your point of view, the reason you should come, apart from the fact that it's party city and it's a great, wonderful place to be, is because you'll get free enterprise Enterprise Professors, who are rarer than hen's teeth in university campuses.

1:01Most campuses have maybe one and some have none. In my economics department, we have four people and we're all austro-libertarian free enterprise professors. We've got several others in other departments in finance and law and even chemistry. Now don't worry, if you like Marxists and you like feminists and you like other pinko professors, we've got plenty of them too. Just go to our sociology department, we can out-pinko anyone, you know, we're great at pinkoism too. But the problem is you go to most universities and all you get is Keynesian economists and economists, professors who are trying to convince you that the government is great and we need more government.

1:46They don't follow free enterprise. They don't acquaint you with people like Mises or Rothbard. They've never heard of them. They think Milton Friedman is a great free enterprise. He was a very moderate supporter of the free society. So get one of these, take a look at it and consider applying to Loyola University, New Orleans. Okay, end of commercial. What I should probably do is get a girl in a bikini and get her to sort of indicate that if you come there you get the girl like they do when they try to sell cars, but I won't do that. Because I don't know any girls with bikinis around here right now. Okay, so let me get into my subject. My subject is Why the Minimum Wage of Keeping You from Getting a Job.

2:36And let me say that it's an honor and a privilege to be once again involved with the Mises Institute. Free enterprise, private property rights, economic freedom are a recipe for peace and prosperity and a reduction in poverty. The essence of it is free trade, and free trade is mutually beneficial every last time. So for example, if I trade you this, you have a pen, I have a tie, and we want to make a trade, and you want to give me your pen for this tie, that must mean that you value this tie, fool, it's not a very good tie, but it must mean that you value this tie more than the pen, and you make profit, you dirty profiteer, to the extent between the value that you put on the tie and the pen, and I also make profit.

3:27It's a mutually profitable exercise because I value your pen more than the time. And the profit I make is the difference in valuation that I see between the two. So it's mutually beneficial. Every trade is mutually beneficial, at least in the ex ante sense of anticipations. That's why we trade. That's the beauty of the market or the magic of the market, that it's mutually beneficial. It's a vast cooperative enterprise. And every time the government stops this, they reduce economic welfare, and they reduce economic freedom. But this is true not only in cases of barter, like a tie for a pen, it's also true when you buy a book like this. You value the book at more than the price, otherwise you wouldn't buy it. They value your money more than the book, they've got plenty of books, so they make a profit off of you, you make a profit off of them.

4:18You want to call it exploitation like the Marxists do, fine. But realize that if this is exploitation, make the best of it. This is mutual benefit. And it also works in the labor field. Every time someone hires someone, they expect to make a profit off of them. And the employee also makes a profit off of the employer because the employee values the money that he's receiving, which he's receiving, more than the leisure foregone. So again, there's mutual benefit. It's not exploitation, that's just Marxist nonsense. Before I get into this, I want to get into some more basic question, why do we have to work at all? And the answer to that is, the reason we have to work is because we live in a world of scarcity. If we lived in heaven, where a manor came down in the form of Maseratis In the real world, we have scarcity. Scarcity means we want more than what we have. The only way to get more of it is to work. So we have to work. Given work, why do we have

5:38employer-employee relationships? Why don't we just each work for ourselves? Well, I think I think Doug French mentioned very well the point of specialization in division of labor. We each specialize in something and we work together and we can get more that way than if we each work for ourselves. How do you get to be an employer in a world where everyone starts off working for themselves? Well, some people save a little money, they make more than they consume and then they hire someone else and then they're an employer. So there's nothing special about being an employer. You don't have to get a government imprimatur or anything like that. You just get up on your hind legs and save a little, and now you can hire someone else to do something, and now you're an employer.

6:25Okay. What does the employer give to the employee? What's the benefit of employers? Employers are denigrated by newspapers, by journalists, by clergymen, by pretty much Suppose I'm the employer, and you guys are my employees. What benefits do I give you? One benefit I give you is time. Suppose that the business I'm in, or that we're in, is making these podiums. You guys could have a workers co-op, you don't need me, you could just set up on your own. But if you did, by the time you made these things, by the time the first one rolled off If you start from scratch, you're going to have to decide who's the carpenter, who's the mechanic, who's the person who's going to get the factory, who is the person who's going to get insurance.

7:20And what are you going to do for salary during this time? You're going to have to either borrow money or pay it out of savings, or you're just not going to have salary for years. So the thing that I do for you is I give you salary. I'm setting up the shop and I'm giving you a salary for the whole year that it takes to make these things that you wouldn't otherwise have. So I give you time. The second thing I give you is risk bearing. Because suppose at the end of the year when these things come off the assembly line, nobody wants to buy them. They say, oh, brown podium, we don't want brown ones, we want blue, or we want polka dots, or we don't want podiums, or whatever. I can't come back to you and say, Hey, remember that salary I gave you for this past year? Give it back. You have the salary, you keep the salary, so I'm bearing the risk of whether these things will sell or not.

8:09So that's why workers' co-ops aren't as... aren't... you don't find them too often, because workers want someone else to give them the time and they want someone else to bear the risk. I can't come back to you and say, The salary I gave you, that salary is yours, and the third thing that the employer gives to the employees is entrepreneurship or leadership, namely it was my idea, I started it, I said, hey, come work for me, we'll make these podiums and I'll pay you, so these are the three things that the employer gives to the employee, we live now in a situation in Wisconsin and elsewhere where there are unions that are denigrating the employer, although in some cases it's public sector employers, The capitalists are always saying how great the workers are and the capitalist is just a leech.

8:59Well, the capitalist isn't just a leech, the capitalist is making it all start up and keeping it going. Okay, so we now know why we have to have work, scarcity, and we know why employer-employee relationships are to be found. Now let's discuss wages. Why are wages what they are? Why do some people get a lot of money and other people get a little money? Well, the answer from the economist, and here most economists agree on this, virtually all, with the exception of a few weirdos, is productivity or marginal revenue productivity. What is marginal revenue productivity or productivity? It means I've got 100 people in my factory and we're producing $10,000 worth per hour and I'm going to hire one more person and I'm going to assume that all the people are equally productive.

9:50And now, all of a sudden, instead of receipts of $10,000 an hour, I've got receipts of $10,005 per hour. And we attribute the extra $5 to the fact that you, the 101st worker, is now on my shop floor, whereas before you weren't. So when you're on the shop floor, my productivity rises, or the amount that I can sell rises by $5 an hour. I say that that's attributable to you, and your productivity is $5 an hour. Well, what will your wage be? Assuming that capitalist pigs or employers are capitalist pigs and they're greedy, just like the leftists say, what would be the opening bid for a person whose productivity is $5 an hour?

10:35Can anyone answer that? One dollar. I can't hear you. One dollar. As you know, capitalist pig, you're disgusting, you're a disgrace to capitalism and piggery. The right opening bid is minus infinity, namely, I have to pay you for the privilege of working for you an infinite amount of money. That's the opening bid. But now to get back down to reality, let's say the opening bid is a penny, not a dollar. A dollar, the workers get uppity and you know, you can't deal with them. You offer a penny. Now, if the worker is worth $5 an hour and you're paying him a penny, how much profit are you making off of him? $4.99. Now, we all applaud you because you're exploiting a worker and that's good. But there are other capitalist pigs out here in the audience.

11:22You're all potential employers and you applaud him for paying a penny and making $4.99. But are you happy with this situation? No, you're not happy with this situation. What are you going to do? Pay him more money. Give me a bid. Give me a specific bid. Two cents. There's my man. Good capital. He's become a good capitalist overnight. Pay two cents an hour and now you make only $4.98. Good work. Don't poke him. He's doing a good job. Of course, parents always have to embarrass kids. It's part of the contract. If we don't embarrass kids, they'll take away our parental rights, so we have to do that. Two cents an hour, and now you make $4.98. Do you see where I'm going with this?

12:10Some other capitalist pick is going to say three cents an hour and make $4.97. Then we're going to get up to a dollar and you make $4, and then someone's going to say a dollar one, a dollar two. Will this end in equilibrium, which we never reach, but we always move in that direction of $5 an hour? Assuming away costs of finding these people and costs of negotiating, so it might end up at $4.95 or something like that. That's why growers in California go down to Mexico with a truck and haul Mexican workers up here so that they can pick stuff because they're making $0.22 an hour down there and they're paying $3 an hour here and Mexicans say, oh, what are you, crazy? $3 an hour, that's magnificent, much higher than we're getting here.

12:59It's an attempt to bid up wages toward marginal revenue productivity or productivity. So we now have a theory, which I hope you've swallowed, because I think it's eminently rational, that wages depend on productivity. Can the wage be higher than productivity? Suppose the productivity of the worker is $5 an hour and you're paying $6 an hour. Will this long endure? No, because now you're losing a buck an hour on the guy, you do that once too often, you go broke, and you're not part of the economy anymore. So wages have an upper bound, namely productivity, and a lower bound, namely productivity, namely wages tend to equal productivity.

13:44Now there are other theories, weird, idiotic theories, stupid theories, let me just give you a few. One of them says that assertiveness is what gives you your wage. Feminists say, well, you know, the reason men earn more than women is because men are more assertive. They come into the office and say, hey, I want a raise. Give me a raise or I'll, I don't know what. Whereas the woman comes in, oh, please, can I have a raise? And, you know, nobody listens to her because she's, you know, more gentle. Well, this is crazy. I mean, Lady Gaga gets a lot of money, not because she's assertive particularly, but because she ticks off her clothes in a very beguiling way. Namely, her productivity is high. Productivity, you might not think, well, she's not producing anything but she is producing something. She's filling seats in stadiums or in wherever they do their shows. She's productive. Some people say, well, whites get more than blacks. Well, some whites are more productive than some blacks and get more money, but Derrick Rose

14:43and LeBron James are black and they get a lot of money, not because they're white or black but because they have a lot of productivity. A lot of people want to see them dunk a basketball. By the way, the reason females get less money than men is not because they're less productive, although in previous centuries they probably were less productive because a lot of jobs took our upper body strength, and the way we'd knock down a tree was with a hatchet and men are stronger than women, but nowadays the way we knock down a tree is by pressing a button and the machine does it. The reason women earn less money than men is because they have unequal shares of household Keeping and Baby Watching and stuff like that, and whenever you do anything, you do it at the cost of something else. The reason Lebron James is not a world-class cellist is because to become a world-class cellist you have to play the cello eight hours a day, and he's too busy doing other things.

15:37So whenever you do anything, you do it at the cost of something else, and if women are busy taking care of kids, well then it's obvious they're not going to be as good at something else, namely productive in work, as they would otherwise be. And the proof of this is that if you consider never married women and never married men who have equal household keeping because they live by themselves, well then there is no wage gap between them. Another one is the employer decides. The employer decides on wages, hey I'll pay you 10, I'll pay you 15. That's silly because if the employer decides, he would pay minus, he would pay minus infinity or a penny or something like that. So these other theories are silly.

16:22The theory that I'm espounding is productivity, and that's the correct theory. Okay, so now we've established why people get the wages that they get. Now let's talk about the minimum wage law. Now here we have this person whose productivity is $5 an hour, and the minimum wage law is $7 an hour. Why do people espouse the minimum wage? Because they think $5 an hour is too low. They think you really can't make much, you can't have a good life if you're making $5 an hour and ostensibly we're going to, the minimum wage law is like a floor under wages and the higher it is, the higher wages will be. Nonsense. Nonsense on stilts. This is silly. This is is preposterous, because we know that if the employer has to pay seven and the employee is only worth five, he's going to lose two dollars an hour. He can't last in business that way. He's going to go broke. But he doesn't have to hire him. You see, the minimum wage

17:29law doesn't say you have to hire him. It just says if you hire him, you've got to pay him seven dollars an hour. But you don't have to hire him, so you don't hire him. That's why we have unemployment. Well, that's one of the reasons we have unemployment. The Austrian and Business Cycle Theory is a much more complex thing, not really suitable for high school students. Not that it's pornographic, but it takes a little time to get into it. So this is a simpler crack at unemployment. The metaphor that the minimum wage is a floor in the wages and the higher you raise it, the higher wages get is wrong. A much better metaphor is a barrier over which you have to jump to get a job in the first place. and the higher the minimum wage law is, the higher you have to jump with your productivity to get a job and if they keep raising it, well then you can't get a job.

18:19That's a much better metaphor. And in order to illustrate this, what I'm going to do, see when I was young and I'm giving these, I would take one of these chairs and I would jump over it. That's when I was young and spry, not young and spry anymore. Now what I'm going to do is I'm going to take this book, I'm going to put it down there and I'm going to jump over it to illustrate the minimum wage. So, if I succeed in jumping over this high bar, I want a little applause because of my physical, you know, whatever. So, watch. People in the back won't be able to see it, but people in the front, they are witness to the fact that I actually am jumping over this book. I need a little running start momentum because I'm old and fat and I can't really do it if I'm too close, so watch.

19:08LeBron James, eat your heart out. The minimum wage is a barrier over which you have to jump to get a job, and the higher it is, the harder it is to get a job. And you teenagers, despite what Doug French said about your brilliance, have low productivity. Why do you have low productivity? Right now, if you're 16 or 17 or 15 or something like that. The reason you have low productivity is that you're not used to working. You're students, you'd be neophytes in the job, you have to be trained. They don't know which of you is good and which of you isn't, and if they're going to take a crack at you or take a chance on you, the wage can't be too high.

19:56So that's why you have a lot of teenage unemployment during the summer, when kids are out of school and want to get a job, and then the politicians, the very politicians who are responsible for for this outreach in the first place, start whining and begging and saying, and blaming too, and saying employers, hire these kids, and be a good citizen and hire these kids, but first they make it impossible, economically impossible, to hire these kids, and then they start yelling that they're exploiting by not hiring these kids, if they would just stop with their minimum wage, people would hire you at a lower wage, and then you would get, as Doug said, on the job training, and you would get more skills, And then your wage would go up as your productivity goes up.

20:41And this comes from two sources. As your productivity goes up, the employer is going to be more and more unhappy at the prospect of losing you and will give you a raise. Or other employers will come and bid you away from the first one, like that thing that we went through before when we went from a penny to $4.95. Or you go to the boss and say, hey, my friends in the bowling league are making way more than me. I'm going to go work for them, unless you give me a wage increase. I don't care how assertive you say it. The key is, if your productivity is higher, you'll get a higher wage. Okay, I'm now going to go through some objections.

21:33Before I get to these objections, let me talk about exceptions. There are some exceptions that are made in the minimum wage law. Sometimes, I don't know if this state has that, but some states have an exception for teenagers. If the minimum wage law is $7 an hour, they'll have a special teen minimum wage of $4 an hour. Why? So they can help these kids get a job. But if you can have an exception, that shows that the law itself is preposterous. Because you don't need an exception. Nobody who's sick needs an exception from penicillin or from some drug that will cure you. So the point is if you have to have an exception, then the law itself is not very helpful. The law itself is the thing that is a problem.

22:18Here's an objection. One of the highest percentage increases in the minimum wage law occurred in the 1940s in the 1940s when the minimum wage law went up from 40 cents to 70 cents an hour. That was one of the highest percentage increases, almost doubling. When it was 40 cents, if you get on an elevator, you'd see a guy on the elevator already. He wasn't a pervert. He wasn't trying to molest you. He was the elevator operator. Some of you might have seen black and white movies where they had elevator operators. I'm not making this up. There were elevator operators. Honest. And at 40 cents, they were competitive with automatic elevators. At 70 cents, they weren't.

23:06But the next day after they raised the minimum wage law from 40 cents to 70 cents, how many of these elevator operators do you think got fired? Zero. Let me take a brief excursion into sports. Pitchers, before the latest two pitchers, a black guy and a Jewish guy, a good pitcher could pitch the ball at 95 miles an hour. Now there's two new baseball players, I forget their names, who can pitch at like 103 miles an hour. You've heard of that? Why do the pitchers pitch so fast in Major League Baseball? Duh! Because the faster they pitch, the harder it is to adjust. If the ball is coming by at 100 miles an hour, the poor batter, it's hard for him to figure out what's going on. Whereas what they do before the game starts, they have a thing called batting practice, where they'll get the fifth string pitcher to pitch the ball at around 50 miles an hour.

23:59I mean, 50 miles an hour might seem fast to you and me, but for those guys, 50 miles an hour is very slow. And now the batter can adjust, and he can figure out if he can see the bloody ball, and he can knock it out of the park, even the shortstop who can't hit his way out of a paper bag The point is, the more time you give people, the more they can adjust. So in the very next day, after the minimum wage law went up from 40 cents to 70 cents, the employers didn't have a chance to adjust. So they couldn't fire anyone and replace manually operated elevators with automatic elevators. In the next month or two, the trickle started, and after a year or two or three, there were no more manually operated elevators, they were all automatic.

24:51But people didn't say, aha, it was the minimum wage. They said, oh, this, that, interest rates, God knows what, technology. Let me give you another example. When I was a kid, when I was first driving, this is when dinosaurs roamed the earth, you go into a filling station and you're attacked by about five people. One of them puts the gas in there, one of them checks the oil, one of them does the front window, another one does the back window, and someone else checks the tire pressure. And that was learning on the job because there was a very, very low minimum wage. Nowadays, you know, if you were checking the tire pressure and then when the mechanic was fixing the car, he'd sort of ask you to pass him the wrench and you'd look over his shoulder to see what he was doing. That's the way you learn to be a mechanic in those bygone days.

25:36Nowadays, you go into a filling station, you pump the gas yourself. All those jobs are gone. Why are they gone? They're gone because of the minimum wage, not because of technology. It's the same with supermarket checkout counters. Some of them have automatic checkouts. You go to the airport, you play with that computer thing, there's no more service because a lot of jobs are gone because of the minimum wage, because people can't jump over the and the level of the minimum wage. So this objection, I think, is silly. If the minimum wage law is such a great idea, why do we have it at just $7 an hour? Why don't we make it $70 or $700?

26:24I mean, if we made it $700, no one would have a job. Except maybe Doug French, he makes more than $700 an hour. He's a macho man. But most people aren't worth $700 an hour. If you made a minimum wage law of $700 an hour, no one would be working. There's no magic in a pen. You just can't write on a legislative enactment and say, everything will be great. Wages will be $700 an hour. Okay, if minimum wages are so bad, why do we have them? Well, you know, if you go to watch those movies, the CSI movies, the first thing they do, they see a dead body and they say, well, how about the spouse or the child who is going to inherit the equal bono, who benefits?

27:15Well, who benefits from the minimum wage law? Well, prison guards. Because when you have unemployment of teenagers, they get into trouble and they break the law and they go to jail and prison guards have more jobs. or psychologists, because when you're forced into idleness, you go a little crazy and you need help of the psychiatric profession. But the main ones who benefit, and I think it would be an interesting research project to see the relationship between minimum wage and prison guards and psychologists, but the main ones are unions. Why unions? Union workers are very skilled workers and they're making $20 an hour. And why are they so intent on raising the minimum wage from 7 to 8?

28:04Well, one possibility is they love their less productive brethren. If you believe that, I've got a bridge to sell you. A much more reasonable explanation for this is when the... Let me get off the point for a second. If you're making rowboats and you have a choice of making rowboats out of wood or plastic and all of a sudden the price of wood rises, What do you naturally gravitate toward? Making your robots out of plastic? Yes? I mean, you see the obvious point when one input goes more expensive, you shift to the other one. If you're thinking of having lunch today and you're either going to have a burger or a hot dog, and I tell you the hot dog's tripled in price, are you not more likely to buy a burger instead because the hot dog tripled in price? Yes.

28:52We all move out of the more expensive input and into the less expensive input. Now back to unions. So the union comes to the boss and says, boss, we're making $20 an hour, we need $30 an hour. What's the first thing that the boss is going to try to do? He's going to try to substitute out of skilled labor and into unskilled labor. Namely, he can, he can, there's many ways to skin a cat. You can make the podium here with the skilled workers and unskilled workers in this proportion or that proportion or this proportion, many different proportions. So if the price of skilled labor goes up, he naturally tends to hire unskilled labor and fire some of these guys, which is the last thing the unions want. And in the old days, the way the unions would deal with this is they'd call the replacement workers or the unskilled workers, they'd call them scabs, which is sort of hate speech, I don't know why they don't throw them in jail for that, but that's another issue.

29:48They call them scabs and they try to beat them up. The problem is that the scabs fight back. Much better, much more sophisticated, is to make it impossible for the employer to hire these workers in the first place. And how do you do that? If you were paying attention, you ought to be saying, minimum wage law. You pass the minimum wage law and now the incentive of the employer to hire the alternative of Replacement Workers is greatly atrophied. Doug, when do I stop? Am I going past my time? OK, I should shut up. Let me just conclude. Come to Loyola. My colleagues are much better than I am, but I'm pretty good. I'm very enthusiastic about this stuff, and I really want students who are interested in free enterprise.

30:34Thanks for your attention. Thank you very much.