I generally understand that the minimum wage law prices low-skilled labor out of the market; however, I'm confused with how high-skilled workers wages would be without a minimum wage law. For instance, without a minimum wage law low skilled workers can outcompete high-skilled workers but selling their labor for less, but now it seem the high-skilled workers have outpriced themselves out of the market by offering a more expensive wage. Wouldn't employers just hire low-skilled workers since it costs them less? A relative question: does the nominal wage matter? Or is the real wage more important? I ask this last part because I hear complaints on how people can't live off minimum wages, and I concur, but I think it's true only because the purchasing power is much lower. Is this a fair assessment?
Thanks!
Employers care about the marginal value of a worker. Low-skilled workers may cost less, but they produce a lot less. What matters is the labor cost per unit produced. Workers receive higher wages precisely because their productivity is such that they are worth more.
What matters to the poor is the real wage, yes. And real wages are raised by productivity, not by getting more money. What matters is how much, say, bread costs. We could give the poor ten times as much money, but if there is the same amount of stuff to go around then they aren't any richer.
Thanks! That makes more sense. I thought it had something to do with productivity but couldn't express it the way you did.
Thanks! Once you think of it purely in terms of marginal utility, and forget all that class warfare about unions they taught you in school, it really becomes kind of simple. Think of it this way: What would you pay more for, a low-skilled worker who can assemble 10 widgets an hour by hand, or a high-skilled worker who commands a machine that can assemble 100 widgets an hour? You would happily pay the latter up to ten times as much, depending on the cost of the machine.
Now, the real wage of workers (their wage in terms of widgets, so to say) understandably rises because there are more widgets to go around. And society has lots of widgets because... we produced many of them! So when we produce lots of stuff (high productivity) then we have lots of stuff (high real wages), go figure.
You didn't think the unions supported minimum wage laws because it benefited the low-skilled worker did you? That's a common misconception. Unions back minimum wage laws because it drives this "cheap" labor out of the market so the union jobs become more secure or even more prominent.
Also, lower wages aren't necessarily a bad thing if the price of other things comes down as well. Minimum wage laws go against the natural market tendency and tend to drive the prices up. The marginal effect on the labor, skilled or unskilled, could be negative rather than what was intended. Unions backing these laws could very easily be hurting themselves as well.