Minimum wage laws are interference by government in the contract between two citizens- employer and employee. And have the same consequence as any other manipulation of market by force. An employer will pay a worker what the worker produces for him minus the other costs of the employer, including his profit. Employer will never be able to have large profits at the cost of wages, because Capital will immediately flow in the segment and competition will lower the profits to bare minimum, unless of course even flow of Capital is being manipulated by government. And in any case, nobody will be buy produce of such business, because others’ buying capacity is the wages they are getting, and since everybody is getting low wages compared with profits, and therefore total cost, so if profits are high compared with wages in the market, the produce won’t sell. Another cue regarding profits lie in the fact that if profit were the main reason that wages are kept low, governments could have paid very high wages to its employees where it does the business, because it is not a robber profiteer. For example, great GOI was running five star hotels till some time back. Since it was not a blood sucking Capitalist, so it should have paid wages higher than industry and since it was paying higher than industry, its employees should have been more productive and its services in those hotels should have been better. But we know that was not the case. Another example is Air India. Since it is under no pressure to earn profits, so at the same wage level as its private counterparts, its ticket should have been cheaper, and so its planes all full, and its loss zero; or if ticket cost is the same, its wages should be higher than industry, and services better, because the employees are better paid. But that is not the case. An analysis of wage and profits in the US showed that for most of businesses profits were between 5 to 8% of turnover, and rest of the earnings, about 90% were being given away as wages and costs of other inputs. Another example can be taken of family businesses like housewives making papads. Since they are their own employers, so they could fix their wages equal to Reliance CEO, but apparently they are not able to do so. And of course since Communist countries were not blood sucking, Global warming causing Capitalists, so they should have been able to pay higher wages, and the workers, being better paid, should have produced more, and their economies would have beaten Capitalist economies of the west. The fact is that if minimum wage by law is Rs 300, and a man’s productivity is only Rs 200, minimum wage law has driven him out of market and rendered him unemployed, eligible for free rice and food stamp. The business which could have employed him at 200 will no longer be there. Cost of free rice and food stamps will have to be taken away from economy by way of taxes, so other workers will get paid less, and fewer businesses will be started. And work (and therefore wealth) equal to Rs 200 will not be added to GDP. Money is not currency notes. Otherwise government could have just printed them and make us all rich. Money is the work we do. Currency notes are just receipts for the work we did, so that with these notes we can buy somebody else’s that portion of work which he has surplus and we need. Minimum wage laws make sure that those whose work is worth less than the minimum wage, never get employed, or both employee and employer collude to break the minimum wage law, both becoming criminals in the process. And creating culture of corruption. Economics is very simple. If all citizens knew its basic laws, no Socialist will ever be voted to power. I occasionally give links to books on Basic economics. Instead of learning their economics from the Leftists holding forth on TV and in print media on robber profiteers, if friends could read them, I won’t have to run Economics 101 on every comments thread. It is not always possible. It requires time and a certain frame of mind.
