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Do we really need a minimum wage?

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It's true, however, that an employer does have a measure of control over the would-be employee in the same sense that a vendor is controlled by his or her customers. In other words, an employee needs to have a skill that is worth paying for, just like the vendor needs to have a product that his or her customers are willing to buy.

The other error with the idea that companies will resort to collusion to keep wage rates extremely low is that it doesn't take competition into consideration. In order to rise above the rest, a company needs to have better talent than its competitors. Obtaining talented people, drawing them from other areas of employment, is most easily done by offering superior salaries and benefits.

This is easily demonstrated by the fact that most workers are paid more than the legal minimum. In fact, according to the Social Security Administration, the average wage was approximately $21/hour in 2010.[4] If an employer isn't required to pay more than $7.25, why is the average almost three times that? The answer is simple: a company needs to pay more to get better employees. Even if an entire industry does collaborate and depress wages, the arrival of even one competitor willing to pay higher salaries will erase the others' advantage. Thus, both natural competition and workers' freedom prevent companies from being able to "force" employees into exploitation.

Although it's not as common, many people are also concerned that eliminating the minimum wage, currently at $7.25 on the federal level, would drop wages across the board by an equal amount. Someone making $20/hour, the theory goes, will quickly see their wage drop to $12.75. The error in this thinking, however, is that the minimum wage is not a price floor for all wages — just for those that would be less in the absence of regulation. A person making $20/hour won't see a change in his or her pay if the minimum wage is decreased because the company isn't basing his or her wage on the minimum wage to begin with. Job descriptions don't list salaries of "$10 higher than minimum wage," for example.

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