The Case Against Minimum-Wage Laws
Minimum-wage laws are again in the news, as Joe Biden and his political allies in Congress seek to push the national minimum from its current level of $7.25 per hour up to $15 per hour. Some politicians, Sen. Bernie Sanders for one, declare that people can barely survive even on $15 per hour. If the law takes the minimum up to $15, we can expect pressure to raise it still further in the future.
After all, why shouldn’t the government be compassionate and improve the lives of millions of low-wage workers? Many Americans think that’s one of the reasons for democracy—so that the government can respond to people’s needs.
There is a great deal wrong with minimum-wage laws and I’d like to set forth my case against them. I’m not just against the current move to raise the wage, but against the very concept of laws dictating the terms of contracts between people.
Whenever two people agree on a contract for goods or services, they have peacefully consented to the deal because both expect to be better off as a result. Peter might agree to pay Paul $50 to clean the leaves out of his gutters; Jennifer might agree to pay Jane $8 per hour for cleaning up her restaurant. All four are satisfied. They would probably prefer to receive more or pay less, but they are content with their contracts.
No other person has any right to interfere with them. If Joe were to threaten violence against Peter unless he pays Paul $60, or if Nancy were to threaten violence against Jennifer unless she pays Jane $9 per hour, they would be guilty of a violation of the criminal law.
But if the threat comes not from meddlesome citizens like Joe and Nancy, but from the government, that is supposed to make threats of force all right. When governments enact minimum-wage laws, or increase existing minimum wages, that’s what they are doing—threatening to use force against peaceful individuals for not paying what government officials have decreed to be enough. Unfortunately, few Americans think there is anything wrong in doing that.
There is something wrong, though. The responsibility of government is to protect the rights of its citizens, not to threaten them with punishment for peacefully going about their lives. However passionately you might believe that Paul, Jane, and all other workers need or deserve more, you should agree that it’s morally wrong to accomplish that through coercion. There are noncoercive means of assisting people in need. Peaceful action is better than using force.
What else is wrong with minimum-wage laws?
The most common objection is that they cause unemployment among workers with low skill levels. If Peter can’t afford more than $50, he won’t hire Paul and instead do the work himself. If Jennifer can’t afford to pay Jane $9 per hour, she might invest in automated cleaning equipment. For some workers, therefore, the mandated minimum will not mean more income, but less, as they find it hard to contract (legally, anyway) with someone who values their work at the government’s new minimum level.
When you point out to minimum-wage advocates that some people are certain to lose their current jobs and others who haven’t yet entered the labor market will be unable to find any job at all, they are nonplussed. They will tell you that some studies by economics professors show that unemployment due to the minimum wage isn’t “too severe” and say that the gains to workers who get jobs at the higher wage outweigh the losses.
That’s elitism for you. How can anyone claim to know how much harm is done to a person who cannot find legal employment? How can you measure the losses to a young person or an unskilled immigrant who never finds an honest job because of the minimum wage? Even if it’s true that some workers benefit from higher pay, their gains can’t be compared with the long-term suffering of those who are rendered unemployable.
Furthermore, that utilitarian “gains versus losses” calculus is bogus because many of the apparent winners would have earned raises to or above the minimum wage anyway. With the experience they acquire from entry-level jobs at the minimum wage, most workers earn raises or find jobs that pay more. Increasing the minimum wage merely hastens the point in time where they would naturally—that is, without government coercion—have increased their incomes.
Minimum-wage increases are therefore wholly responsible for the devastating losses of unemployability, but for little if any of the apparent benefits of higher earnings.
Opponents of minimum-wage laws have been pointing out the long-run harm they inflict on low-skilled workers for many, many years. They have shown particular instances of workers who were let go and businesses that had to close, as well as economic research on the extent to which minimum-wage laws increase unemployment generally. But I have never heard of a single politician who said that the evidence has caused him to change his mind and vote against minimum-wage increases, much less to advocate repeal of the law.
That, I contend, is because minimum-wage laws are not really intended to help the working poor. They’re intended to help politicians get and keep what they crave: power.
Are These Laws Well Intentioned?
My argument is based on Public Choice theory, which looks at politicians not as high-minded devotees of the social welfare, but as ordinary people who are interested in their own welfare.
When they vote for minimum-wage increases, politicians get to bask in the light of their supposed compassion, claiming credit for having “raised people out of poverty.” That gets them votes and financial support from those who believe that it is the government’s job to reduce poverty.
But what about all the people who are thrown out of work, or aren’t able to land their first job? A few of them might accurately pin the blame for their plight on their “representatives” who supported the minimum-wage law, but most won’t know that. They don’t follow politics that closely. Losing those few votes is piddling in comparison with the gains for the politicians who favor higher minimum wages.
Moreover, unemployed workers are easy marks for the rhetoric we constantly hear from progressives about their plans to create an economy “that works for everyone.” Frustrated workers who can’t find jobs but don’t understand why they can’t, are easily lured into the web of statism with promises from politicians to help them through governmental welfare and training programs.
Finally, those same politicians love to foster the illusion that the way for people to better their lives is to demand action by the government. The big “Fight for $15!” rallies are a delight for politicians who want people to believe that good things come from the state rather than from voluntary action by individuals and private organizations. Minimum-wage laws don’t just inflict economic damage, but they also damage the fabric of civil society by encouraging a “the government is your savior” mindset in people.
Frequently we hear criticism of minimum-wage laws that goes like this: “The laws are well intentioned, but have bad consequences.” I cannot agree. Minimum-wage laws are not well intentioned. They are evil in their methods (coercion) and evil in their goals (to make people believe they’re dependent on government). If we could ever abolish them, the United States would be a much better nation.
This article was originally published in the May 2021 edition of Future of Freedom.
It should be up to the applicant what wages to accept. The government should butt out
If some politicians, like Mr. Sanders, believes that a minimum wage of $15/hour ($31,200 annually for full time workers), is not a livable wage, why is the official Federal Poverty Income only 41% of that, or $12,880? In good economic times, no one, other than farms, ever paid as little as minimum wage to attract employees. When times were good in the 1990s, Taco Bell was offering $14/hour, and minimum wages were less than $5 at the time. Wage standards are only necessary when businesses do not have to compete for workers. Bring back decent jobs, and these discussions quickly become moot. Does anyone actually believe that Rosy the Riveter made $0.30 an hour, which was the prevailing minimum wage? No, she made about two and a half times that, because they needed her more than she needed the job.
Another evil: Laws mandating minimum wages tend to result in the minimum also becoming the maximum in too many instances. A free marketplace results in higher wages for many.
I think we are seeing the ramifications of the minimum wage. Folks are refusing to work for poverty wages. There are hundreds of businesses with “help wanted” signs, fast food and traditional sit down restaurants can not find enough people to hire. A world famous local Amusement Park resorted to rolling blackout dates due to lack of employees. Amazingly, they raised their starting pay to $20 an hr and boom… all of a sudden they had plenty of quality applicants. The park is up and running and they are again making money hand over fist.
The right has for years said that minimum wage jobs aren’t meant to support you. Workers have found higher paying jobs and now the right is upset that workers don’t want to work for $7.
If you want quality applicants, you have to make it worth their while to work. $7 an hr is not going to do it. Let the free market reign.
Don’t work, don’t eat
One negative aspect of minimum wage laws that was not dealt with in the article is the pressure on inflation. Simply put, if you have a static amount of goods and services available, and you artificially increase the money supply the value of the currency is diminished.
If simply giving people more pieces of paper with numbers on them (or the digital equivalent) improves everyone’s lives then why not just give everyone a million dollars?
Follow the money. Any business owner is in business to make a profit. The goal is to make enough to support the owner and make a profit that can be used to improve and grow the business. That growth is what pays for employees and provides benefits to keep the business competitive. A business is not a charity that sets the employee’s salary according to the employee’s needs. The employee must offer value to the business that is at least equal to the pay that employee receives. The more value the employee can offer, the higher the wage they can command in the market. It is not the job of the employer to provide for all the employee’s financial needs or wants. People are responsible for managing their own lives. Simple as that.
Carol,
Obviously the business model that can’t pay a competitive, non poverty wage is not a good business model. As we are seeing, without employees, service suffers, costumers won’t patronize , and then there’s really no money to be made.
The worst is the businesses that put the Fox News talking points on their door whining about how unemployment insurance has made people lazy and now they won’t work for minimum wage. I know I’m not the only one that quit patronizing these businesses that openly admit they don’t value their employees.