Monday, February 22, 2010

Market Forces And The Minimum Wage

This article in the Star quotes Mustafar Maarof of the Malaysian Airlines System Employees' Union:

"The Malaysian economy's practice of letting open market forces decide on wages in this country is no longer practical, the Malaysian Airlines System Employees' Union (Maseu) said Monday.

Hence, Malaysia should have legislation on minimum wage to safeguard workers in the country, said Maseu executive secretary Mustafar Maarof.

He said, almost 100 percent of private sectors in the country practised the European and Western model of business.

"Most business consultants for companies in Malaysia are from these countries which have a minimum wage, for instance, United Kingom, United States, Australia, Switzerland, South Korea and Japan," he said in a statement here Monday.

He said, most business models in Malaysia were linked to these countries but the difference is that most of these countries had their own minimum wage and safety net for their workers, as compared to Malaysia."

I find this both funny and sad:

  1. Market forces will operate whether you have a minimum wage or not.
  2. If the minimum wage is above the market determined wage, then you get *gasp* unemployment, particularly at the margin (i.e. the poor).
  3. The reason why advanced economies have both a minimum wage and a social safety net is because the latter is necessary to compensate for the unemployment caused by the former.
  4. Direct transfers cause less distortion than a minimum wage.
  5. The only good argument for a minimum wage is to limit employer abuses - but that means keeping the minimum wage as close as administratively possible to the market determined wage. I support a minimum wage, but only for this particular reason.
  6. I find it ironic that a closed shop union is taking this stance, since while unions sustain members incomes through collective action, in aggregate they also induce unemployment by raising the cost of labour.
  7. Hence, if you're truly concerned about employment and income for people below the poverty line, than the last thing you want to discuss is the minimum wage.

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