Saturday, December 7, 2013

Milton Friedman on the Minimum Wage

Milton Friedman spoke with such clarity that ordinary lay people could grasp fundamental economic theory.  Here is Friedman speaking clearly in 1966 about the minimum wage.

"Congress has just acted to increase unemployment. It did so by raising the legal minimum-wage rate from $1.25 to $1.60 an hour. The result will be and must be to add to the ranks of the unemployed. 

Does a merchant increase his sales by raising prices? The situation is not different for other employers. The higher wage rate decreed by Congress for low-paid workers will raise the cost of the goods that these workers produce--and must discourage sales. It will also induce employers to replace such workers with other workers--either to do the same work or to produce machinery to do the work. 

Some workers who already receive wages well above the legal minimum will benefit. ... The groups that will be hurt the most are the low-paid and the unskilled. Many well-meaning people favor legal minimum-wage rates in the mistaken belief that they help the poor. These people confuse wage rates with wage income. 

It has always been a mystery to me to understand why a youngster is better off unemployed at $1.60 and hour than employed at $1.25."

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