Wednesday, January 16, 2013

Example of How the Minimum Wage Hurt Businesses

Below is an example how government interventionism harms businesses and thus the economy. In the case below, the adverse impact of minimum wages (hat tip Division of Labor’s E. Frank Stephenson)

In November, Albuquerque voters said yes to raising the city's minimum wage from $7.50 to $8.50 an hour, and just 13 days into the increase, historic city restaurant is already feeling the pinch.

Owners of the historic El Charritos restaurant on Central say the hike is taking a bit out of business…

Romero says the hike came at the worst possible time for the business with an already sluggish economy, as people cut back on eating out and venders upped their prices for food and fuel.

To stay afloat El Charritos is cutting back too. They have slashed hours now closing at 2 p.m. on Mondays and Tuesdays to cut back on operating costs. El Charritos has also chosen not to fill six positions and say things could get worse.
At the end of the day, vested interest groups that root for minimum wages (e.g. labor unions and companies which use such policies to undermine competition) distorts the balance of the economy and results to increases in unemployment

As the great dean of the Austrian school of economics, Murray N. Rothbard warned (italics mine)
In truth, there is only one way to regard a minimum-wage law: it is compulsory unemployment, period. The law says, it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment.

1 comment:

Ed Darrell said...

How have you controlled for post hoc ergo propter hoc error?

I don't see the link between the higher minimum wage and decreasing business. Can you explain that?