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There's this one guy out there, Peter Schiff, and he aired on Joe Rogan a while back. One part of the podcast really caught my attention, and it was when Schiff said that the minimum wage should be abolished.

Without making this question subjective, I'll provide an overview of his arguments, however, that's where I need some help since I'm not so sure on how they stack up to the real world.

Here's the arguments he made:

1. Fixes unemployment rate

A company is not going to hire someone for 15 dollars an hour (or whatever the minimum wage is) if their skill level is only worth 5/h. The company will lose 10/h if they hire someone like that! So instead, reduce the minimum wage so that company's can now pay people 3/h, opening the market for everyone.

Think of a wage as a ladder. It starts at zero, making it accessible for everyone to climb. However, a minimum wage raises the ladder, making it unaccessible to people that don't have good skills. By abolishing the minimum wage, the ladder will be at the ground, so everyone can climb up.

2. Provides an alternative to college/university

If you don't go to college for whatever reason, then your skill level is probably not above the minimum wage. This will make it extremely difficult to find a job. However, with the minimum wage, you can start at the bottom, making 2/h, and work your way up. Even if it's a simple job like moving boxes, you still learn discipline.

3. A minimum wage limits the ability to sell labour

If you can only worth 5/h, you'll never get a job with a minimum wage of 15/h. You'll actually lose money for the company. However, with the abolishment of the minimum wage, then people can sell their labour based on whatever skill their at.

4. Brings jobs back to us

Most jobs will soon be automated, or moved overseas where it's cheaper (India or someplace). However, without a minimum wage, these jobs will start migrating back to us, the original country.

This will create thousands of jobs and create new opportunities for people.

There, that should be Schiff's view on things in chronological order if I did everything right.

Now what I'm wondering is if these arguments actually stack up against the real world.

However, I do have some specific questions:

1. Will this fix unemployment?

2. Would competition naturally raise, prices? And by how much?

3. Whould this bring jobs back to the country?

Anything would help. Thanks.

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    $\begingroup$ Do you want to know the arguments against abolishing the minimum wage which take these arguments for it into account? $\endgroup$
    – Criticizing Israel not allowed
    Commented Jan 29, 2020 at 13:27
  • $\begingroup$ (I don't think anyone can predict what will happen, but you can hear the arguments for (which you have) and against) $\endgroup$
    – Criticizing Israel not allowed
    Commented Jan 29, 2020 at 13:31
  • $\begingroup$ @user253751 Actually yeah, that would be a good idea. I'm trying to keep this non subjective as possible, so sorry if I didn't make that clear $\endgroup$
    – user24424
    Commented Jan 29, 2020 at 18:29
  • $\begingroup$ The one line of reasoning I can think of is: If your wages are less than living costs, what is the point of working at all? Just so you can run up less debt? It's a little bit like saying the minimum payment on a loan must at least cover the interest. $\endgroup$
    – Criticizing Israel not allowed
    Commented Jan 30, 2020 at 10:09
  • $\begingroup$ @user253751 But even be less poor is better than being very poor. There is also the factor of training up, where you start out low, but move to higher jobs $\endgroup$
    – user24424
    Commented Jan 30, 2020 at 17:48

1 Answer 1

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So this is a very broad topic. There are arguments pro and against minimum wages and there are many variables to consider.

As for your question, arguments 1-3 are basically argument 1. A higher minimum wage can limit employment / increase unemployment among people whose hourly value of labor to the employer is less than the minimum wage. As a result, those people may also miss out on increasing their value of labor, by missing out on work experience. That much is true. However, it does not mean that there would be zero unemployment without a minimum wage. For example Germany did not have a minimum wage for many years and still had unemployment. This is because there are other reasons for unemployment as well, like skill mismatches, search costs (frictions), reservation wages, etc.

Argument 4 is basically speculation. There is no guarantee that jobs would return to the US without a minimum wage. People will still have reservation wages below which they will not offer their labor and those reservation wages could still be above the current wage in another country. There is also no guarantee that automation would be significantly halted if the minimum wage were to be abolished (although the speed might slow down a bit).

For the sake of fairness, there are reasons economists would favor a minimum wage. One reason could be for example the presence of a monopsony (one dominant employer) and some would argue that is what Walmart has in certain regions.

Suffice to say that there is no clear answer on whether the minimum wage should be abolished or not.

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  • $\begingroup$ It is not true that Germany had no minimum wage. Most industries have their own minimum wage. In fact they even have their own fixed wage scheme for the usual employer. The same holds obviously for almost all the people working in the public sector. In addition, it is very difficult to fire someone in Germany, adding to the high barrier of entry to the labor market. $\endgroup$
    – Radio Controlled
    Commented Sep 28, 2022 at 8:14

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