(L120 & 125) The Broken Window Fallacy: Minimum Wage Requirements

Why wouldn’t someone voluntarily offer you a job at twice today’s minimum wage?

Story time! Let’s say that a small business opens up selling handmade jewelry and other goods in the middle of a New Hampshire town. Let’s also say that the current minimum wage in New Hampshire is $10.00 an hour. At this rate, the business owner can really only afford to hire 5 employees (in total). So the owner hires his employees, and business is alright; they are new in town, so large profit margins and excessive foot traffic are not to be expected.

After about 6 months of being open, business is rapidly growing. The owner is finally getting out of the red, and into the black! There is so much business in fact, that the owner needs to hire more workers just to keep up. He decides to add 2 more people to the team; it won’t quite cover all of his needs, but because of the high minimum wage, it is all that he can afford right now.

The night that he interviews for his two new employees, a woman comes in asking for nearly $20.00 an hour. Her skills are extensive, and she would be able to bring brand new products into the shop without any training whatsoever. Not only would she save him time, but she would make him money! He thinks back on his other employees; no prior knowledge or skills, no new ideas, nothing even nearly as valuable as this employee would be worth to him. If it were up to him, he would be paying his employees exactly what he deemed their skills to be worth; maybe that would mean $8.00 an hour for a cashier, $8.75 an hour for an opener and a closer, etc. However, since he was forced to overpay for their basic services due to government intervention, he cannot afford to hire this valuable and worthwhile prospective employee.

In short, he is in need of two more workers. He would be able to afford both the above average woman and another cashier/clerk if it was not for minimum wage requirements. With these requirements however, he must choose between superior product and a shortage of man power, or basic work and enough workers to scrape by. In the end, a shortage of workers is just not something that a business (owner) can afford, and so he must kiss this great opportunity goodbye. This issue could have been completely avoided had he and the employees been able to come to an agreement on a fair hourly wage without government intervention or mandate.

When an owner is forced to pay someone more than they’re worth, they lose out on opportunities to hire higher quality employees for a greater cost. This is the broken window fallacy; the seen and the unseen. While we do see that an average worker is being paid very well, we do not see that a better worker is being paid less than they deserve or not being hired at all (because of the average worker’s forced wage).

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(L70) Labor Unions & Price Inflation

Do Labor Unions Cause Price Inflation?

Labor unions and the people who assemble within them cause great price inflation; this is probably done unknowingly by most, due to the fact that the people making up labor unions are ever so self centered. Some of the things most focused on by labor unions include minimum wages, mandatory hours, overtime pay and social security payments. In personal efforts to secure a higher pay for a minimum number of hours, labor unions have run the money supply of their employers nearly dry. In order to compensate for this lack of income, business owners are forced to jack up the prices of their goods and services. As hours grow and wages rise by force, prices will also be raised by force. The single-mindedness of labor union supporters is causing a worsening of their own economic situation. Labor unions are the product of selfish, uneducated and economically ignorant individuals; they do nothing but worsen the very situations that labor-unioners are trying to get themselves out of!

(L35) Becoming a Business Owner Vs. Being a Minimum-Wage ‘Lifer’

Would I rather start a small business or become a minimum-wage apprentice to a mentor? Why?

To me, the answer to this question is simple, actually obtaining the goal however is a whole other story. Personally, I would much rather start my own small business than become a minimum-wage apprentice to a mentor because owning a business means that you have the chance to make so much more money. It also means that becoming successful will make your voice heard, not only to your employees, but to the community you serve. A business is a legacy to be passed on whereas a menial job in which you never work your way up can flood your life with regret, and misery. Founding your own business means having the power and freedom to create something you love; something that makes you proud and others proud of you. It would be a dream come true to own my own business one day; I would be guaranteed work, and a successful businesses offers security that no minimum wage job ever could because a founder/owner is not easily replaced.
Now, don’t get me wrong; everybody has to start somewhere. A mentor is a great place for anybody to begin their journey to owning a small business, but I don’t believe it can offer the same rewards. If your goal is to become a manager, start under the best manager you can find and stay there! But if your goals lie elsewhere, don’t be afraid to get some training before hitting the world on your own either. You can always learn something from somebody else, no matter whether they’re above and below you on the work chain.