Sophie de Mol van Otterloo - Free Exchange, The Argument In The Floor

The article “Free Exchange: The Argument In The Floor” is about the pros and cons of a minimum wage and about why we should keep it.
The first national minimum wage was established in 1894 in New Zealand, so it is a phenomenon that has been around for a while. The article says that a minimum wage will increase employment, and numerous studies support this statement. It makes sense. When there is an equilibrium-wage for a certain job, and the government lets the employers artificially pay more, they do not have the money to hire the number of people the equilibrium suggests. In class we talked about different kinds of unemployment and this measure will make more people structural unemployed, there aren’t as many jobs for low-skilled people as there originally were. Milton Friedman is mentioned in the article calling a minimum wage “a form of discrimination against low-skilled workers”.
But, since 1990, studies have seemed to turn around, they now show an increase in employment in places where there is a higher minimum wage rather than no effects or even a decrease. This is because a minimum wage makes sure that all people can afford their primary goods, like water and Band-Aids. These are goods for which spending doesn’t necessarily go up when income increases. So when more people work for the equilibrium wage, they don’t have the money to buy all these goods and sales go down. When less people work for the minimum wage and do have the money to buy these goods, sales go up. Companies now have more money to hire more minimum-wage people. And employment will go up.
In Britain, it was even the case that a minimum wage made income-inequality reduce. The article gives a variety of reasons, like firms cutting costs by squeezing wages elsewhere. This makes higher incomes go down and more people working for the minimum wage. They also mention improving the productivity of the lowest-wage workers, modestly raising prices or saving money from lower turnover. When using these tactics, companies do have the money to hire the amount of people the equilibrium suggests. Higher incomes will decrease or stay the same, while more less-skilled people are working for more money. That’ll level out the wages more.
After reading this article I was surprised that there are doubts about the minimum wage in America. Being from Holland, where the richest people have to give 70% of their income away in taxes and where social security is therefore a part of daily life, this was quite a shock. Pretty much everyone gets money from the government to support whatever they’re doing. A minimum wage is not something we question, it is inhumane when people are working full time to the best of their ability, and are not able to buy the things that they need. There are reasons why the minimum wage doesn’t have the success it has in America than it does in other countries. For example the infrequent and hefty changes in the wage, companies can’t prepare for that. There is no reason not to have a minimum wage, especially in hard times like these when we rely on the middle class to spend more, it is something that makes sense and is here to stay.

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