One of the fantastic jobs that economists are blessed with is analyzing the unintended consequences that could occur if a certain policy is implemented. There are many consequences of implementing a minimum wage. This blog discusses one consequence that doesn't seem to be discussed very often; probably because it is not politically motivated.
While most economists focus on the increase in unemployment when minimum wages increase, this blog focuses on a potential positive consequence of minimum wages. Assume that you are a company that would like to hire an unskilled worker for $5 per hour. Unfortunetly, the minimum wage is $8 per hour. According to many Libertarian economists, the employer is losing $3 per hour, unemployment rises, and the employer can transfer some of the costs of hiring the employee onto the employee (uniform costs, working holidays, using the increased job competitiveness to make him work harder). However, the BBFiles points out that reality is quite different than theories and charts. In reality, no employer would pay a $5/hour employee $8/hour. The employer will have the natural incentive of training the employee to provide $8/hour of service!
Therefore, minimum wages could provide companies an incentive to train employees, which gives the untrained worker the ability to be worth more as an employee than if there was no unemployment!!!
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Seems to me like the opposite would happen. In a non minimum wage environment a worker might accept a $5 per hour job because the employee would be training them up to a level where they could go out and get an $8 job. The training would be a type of wage increase.
ReplyDeleteWith the minimum wage being $8 however, the employee would already be paying the training wage to the $5 employee, so there would be less money to train them up to the $8 level.
Perhaps having a minimum wage makes it so that the employees don't get trained and so lowers their utility and lifetime earnings.