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Issue Analysis

The Minimum Wage - More Unintended Consequences

All across our nation this summer, especially in larger cities, millions of Americans will be unable to find a job. The young, the poorly educated, and minorities will be the most affected. The biggest reason is the minimum wage and the barrier it creates to full employment.

The argument for a minimum wage always boils down to this: it is better for people to be unemployed than to work for a certain wage. The minimum wage, which some even want to increase, is an ill-considered policy propped up by labor unions and has outlived its original intent and usefulness.

I do not represent business. I don’t currently have any employees, and in fact until a couple of months ago, held a part-time job working for the minimum wage to supplement my income. My perspective is as an employee and observer, not as someone arguing to make my labor calculations more profitable.

For small business owners, and entrepreneurs, there is no minimum wage. It doesn't seem to keep them from striking out and taking a risk, knowing they may not see a paycheck for months, or even years. They may struggle along all month losing money every day, only to make a big sale one day that may or may not push their hourly rate for the month above what would be the minimum. There are as many scenarios as there are storefronts, garages, and home offices.

Among the many cherished myths for progressives are that employers are evil people who wish to provide an unsafe workplace, desire to treat employees as slaves, and generally are not human beings.

Employers are, in fact, almost universally human beings. Some employers will inevitably take advantage of some of their workers, many will not. Some employees will pad their time and take advantage of their boss, many will not. In today's modern social media era, an employer would be wise to offer the best working environment possible, for word quickly gets out if they do not. And in a flooded job market, employees would be wise to offer their employee their daily best, especially with so many others available to fill their position.

Mythology says that employers are motivated solely by short-term profit, and are unable to see (without the help of labor unions and a benevolent government) that treating employees well helps with long-term business health. The competition among employers for the right people doesn’t pierce this veil. It is said:

  • Every job should pay a "living wage"
  • Pay for hours worked above or outside the normal work week should be higher
  • Employers should provide health insurance, family leave, sick leave

But all of these things force tradeoffs. If an employer must provide health insurance, he can’t pay people as much. If he has to provide family leave, he has either to do less business or find a way to cover for the missing employee. That’s not to say the employer won’t do it, or can’t; it just means that there are consequences.

A “living wage” is never defined. Does a living wage involve a steak on the table, or only hamburger? Is it a living wage if a person cannot afford a television set, or to pay for a satellite dish service? Is a living wage the same in every part of the country? Should those with more children be paid more? The entire concept is so hollow and arbitrary as to be ridiculous.

The use of “should” in the demand for reimbursement is noteworthy, because it involves a moral argument about the exchange of labor for money. Sometimes the Bible is even invoked, with passages urging employers not to cheat and to treat employees fairly, such as with “James 5:4 requires wage justice.”

But (accepting arguendo the Bible as authoritative for moral arguments) those Biblical passages say the employer should take care of his employees and treat them well, and that there is spiritual and moral judgment awaiting those who don’t. They do not say that the government should enforce a minimum wage. It is a basic flaw in even this moral argument: just because something is good doesn't mean there should be a law forcing everyone to do it.

Would you work for less than the minimum wage?

It’s an important question to ask yourself. If the answer is “yes”, then why would you deny yourself the opportunity to do so? More importantly, how do you justify denying someone else the ability to make that choice themselves?

This is the point at which any good liberal will rebel, saying that there should be a lower bound below which no, they would not work and below which no one should be allowed to be paid to work.

Even a community organizer, taking home a small salary, can put in enough hours because of his belief in the cause to make his hourly rate far below the standard minimum wage. Should that not be allowed? Think of all the communities that would go unorganized if the organizers can’t put in extra hours volunteering.

Emotional special cases aside, clearly the false dichotomy between volunteering and working for less than the minimum wage serves no one. Or does it?

Minimum wage laws hurt the poor and help unions.

Unions base their lower bound starting wages in part on the minimum wage. The higher the minimum, the higher the union base rate. As with the minimum wage, the higher the union wage, the fewer people the employer can hire.

Without a minimum wage, proponents say, employers will simply “maximize profits on the backs of the workers”. But the rhetoric invoking the lash of slavery is not the only reason that argument fails. Employers compete for labor as much as employees compete for jobs. While some workers and some jobs may not produce enough to justify paying them more than the minimum wage, most do, and will find an employer who is willing to pay what they are worth. The ones that do not produce enough to justify paying some arbitrary minimum are left out in the cold, as it were, under minimum wage laws.

As Meredith Marshall put it, “So stupid is the minimum wage that it keeps kids out of that all important first job, because unskilled workers aren’t worth the training dollars.”

Tom Kummer said, “After all, hiring managers in HR departments don’t hire out of goodness of their hearts. They need to know the prospective employee is a good worker. Having summer jobs, or other part time work is a good way to demonstrate that.”

Perhaps the cruelest of all policies is indexing the minimum wage to inflation. Just as someone on the edge of the workforce is just able to make the case to a prospective employer that their skills will enable the employer to profit more than their wages cost, the government pushes those wages higher, leaving the unemployed still unemployed. Who is better off in that situation? And it is clearly the general case.

The main effect of the minimum wage is to keep people unemployed.

As Thomas Sowell writes (and you should click here and read all of this),

The economic reason is not complicated. When you set minimum wage levels higher than many inexperienced young people are worth, they don't get hired. It is not rocket science.

Wages are currently drifting higher than the minimum wage--meaning that there is no need for a minimum wage law. Employers have chosen to offer wages higher than the minimum in order to get the best employees.

Before we can repeal the foolishness that is the minimum wage, we need to change our culture. Politicians will not lead on it until they know people will follow. The idea of the minimum wage has become entrenched in the culture, and from the culture it must be wrenched.

There will be a Democrat Media Complex blackout on news of the teenage and young adult unemployment rates in the runup to the November elections. This is intentional as to not blame the party in White House.

Politicians act with rational self interest, and because of the mindset of our culture, that the minimum wage is a good thing, there is little hope that this issue will be dealt with any time soon. We must change the messaging to affect the culture, change the culture to affect our politicians. Until then, nothing changes.