To the Daily:
In Alex Biles’s column last week, he put forth the idea that the elimination of the minimum wage would reduce unemployment rates using an oversimplified interpretation of the supply and demand model to support his claim (Paid with good intentions, 02/03/2010). But a more complete understanding of this model runs counter to the stance taken in his column.
First, the supply and demand model makes the following assumptions: All goods are identical, the quality of all goods are the same and buyers and sellers have no market power. But the job market is not two-dimensional, as the model assumes. In our job market the quality of goods are nowhere near identical and people have differing skill levels. Also, in the job market buyers (i.e., employers) do have market power. The dreaded interview process proves this fact. If employers did not have power, any person who walked into a store with a help wanted sign and asked for a job would be hired on the spot. This is certainly not the case. The model of supply and demand — as well as its inherent assumptions — does not accurately reflect the realities of the job market.
Second, the minimum wage was originally put in place to prevent the abuse of workers’ rights in sweatshops and stop child labor. If there were no minimum wage, no labor unions, no regulation, etc. — i.e. a true free market — our country’s employers would be able to openly commit human rights violations. Employers could choose to pay their employers less than a dollar per hour, which actually occurs in places like China. In our country, it would be near impossible to live on one dollar per hour, or approximately two thousand dollars a year. The invisible hand of the market is often touted as a be-all-end-all solution. The only problem is that the hand doesn’t understand human rights.