An economics lesson from a kangaroo

australia.minimum.wage

This is true, although in terms of purchasing power, the Australian minimum wage for fast-food workers is more like $12 in the United States. Click on Australia minimum wage for details from the Real News Network.

Many economists say, without any empirical evidence, that an increase in the minimum wage will automatically result in increased unemployment.  This is because it is a basic principle of economics that if you increase the price of something, people will buy less of it, and so it is with wages.

Under certain conditions, that would be true.  Fewer people would be hired for minimum wage jobs if, say, the U.S. minimum wage was raised to $72.50 an hour.  But there is no evidence that any of the actual increases in the minimum wage have had any adverse measurable effect on U.S. employment.  Indeed, the number of minimum wage and near-minimum wage jobs has increased dramatically since 2007-2009, when the minimum wage was increased from $5.15 to $7.25 an hour.

The basic concept of economics—that the law of supply and demand describes how people respond to economic incentives—is true as far as it goes.  This concept has such beauty and explanatory power that it is easy to forget the other dimensions of human behavior.   Economists who forget this wind up like the physicist in the joke, who could infallibly predict the outcome of horse races, provided there were spherical horses racing in a vacuum.

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2 Responses to “An economics lesson from a kangaroo”

  1. Kiersten Marek Says:

    Reblogged this on Kmareka.com.

    Like

  2. Paul Smith Says:

    Australia has higher unemployment than america.

    Australia’s minimum wage is not in US dollars, and you didn’t adjust for the cost of living. Australia’s minimum wage is 11.10 in purchasing power parity terms (Source: OECD)

    Like

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