Friday, June 02, 2006

The data shows free markets are more powerful then minimum wage:

This morning the much-anticipated job numbers for the month of May were released showing continued growth. Digging into the Department of Labor’s release I was more focused on the average hourly earnings per worker. What I found is that the numbers show capitalism and free markets don’t need the help of politicians to keep workers in a position to live comfortably.

For the month of May average hourly earnings for the country was $16.59. This compares to the current minimum wage of $5.15, three times the rate set by the government. People on the left have to ask themselves how and why would companies offer wages three times the set amount on average if they don’t have too. The reason is because they must. Adam Smith explored why over two hundred years ago in his chapter “of the wages of labor” showing why he’s the father of modern day capitalism. In this chapter Adam Smith points out how owners of business cannot “reduce wages below a certain rate”. The reason is that businesses need to ensure that their workers are paid a wage that is sufficient enough to maintain them and their family. Further he also pointed out how “wages vary with the cost of learning the business”. What Smith is saying, is the more you spend on your education the more you must be compensated by an employer to reflect it. This is why those who go to law school and pass the bar graduate into a higher pay situation then someone who gets a two-year degree at a local college or worse just enters the job market out of high school.

Looking at today’s data further we find that not one industry had an average annual earnings close to the minimum wage rate. Even retail where companies like Wal-Mart are constantly attacked for pay, offer average wages of $12.53 or two and half times the minimum. Even more interesting if we compare average hourly wages over last year we see that they have increase $0.56 or 3.5% from $16.03, more than the current inflation rate. Again this rise over the last year was done not because of legislation by politicians but by the invisible hand of capitalism.

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