Minimum wage, maximum folly

a mandate for unemployment

Price controls never work. That is because if the product’s price is set too high, there is no incentive to buy it. And, if that price is set too low, there is no incentive to produce it. In a free market, the proper price for any commodity is determined by what a consumer is willing to pay and the cost at which it can be produced. It is what economists call “market equilibrium.”

Most people understand this principle, except when it comes to labor. Minimum wage is a price control on labor, every bit as counterproductive as other forms. When the price of labor is set above the value a given worker can produce, that workers is, in effect, mandated to be unemployed and doomed to be a dependent of society.

We are told that without minimum wage laws, employers would exploit workers. But, facts don’t bear that out. According to government statistics, less than two percent of US workers are paid minimum wage. Everyone else earns more, in accord with their recognized value.

When a job does not pay beyond minimum wage, it is because it requires little or no training and applicants are plentiful.  Such jobs are entry level positions that allow new workers to develop experience and a track record as a reliable employee. These jobs represent the first rung on the ladder of success. They are not intended to support a family.

Ninety-eight percent of workers receive pay above minimum wage. That is the result of a competitive job market that puts a premium on skills and expertise. In order to maintain valued employees, employers have no choice but to pay market rate.

Jobs do not exist because people need a means of income. They exist because there is work that needs to be done. The available course for those seeking more pay is to acquire or develop skills more highly valued in the marketplace. The promise of America has been and must continue to be opportunity, not entitlement.

When a business is mandated to increase its overhead expenses, they are forced to take one or more of the following actions:  1. increase prices to the consumer, 2.  lay off or reduce benefits to employees, 3. move toward automation or 4. accept lower profits.  Rest assured, option four will not be the first choice.

Beyond the economics, there is a far more basic question for us to consider. In a free country, why should government prohibit us from acting in our own self-interest when it comes to the marketing of our own labor. If you offer to hire me at a rate I am willing to accept it, why should any third party be allowed to interfere? Such a notion is a blatant assault on individual liberty. So how did this loss of natural rights occur?

Milton Friedman points out that many programs labeled “for the poor” routinely have two groups of sponsors: the well-meaning and the special interests, who use the well-meaning as front men. He identified this to be the case with minimum wage.

The special interests behind minimum wage laws were not a coalition of unskilled workers but rather the labor unions, primarily the American Federation of Labor (AFL) and Congress of Industrial Organizations (CIO). They were the driving force behind the New Deal policy established initially through the Fair Labor Standards Act of 1938.

Union workers do not directly benefit from minimum wage laws or increases. They are paid well beyond those levels. Their benefit instead comes from driving up the costs of competitive labor, making union labor more attractive by contrast. The poorest, least skilled workers are the biggest losers in this equation, as they cannot use the strategy of working at a lower rate as a means to gain entry into the job market.

In his book, “Race and Economics: How Much Can Be Blamed on Discrimination?”, legendary economist Walter E Williams answers that question. “If you look at the justification for the David-Bacon Act, which is the federal minimum wage or super minimum-wage if you look at the legislative debate in 1931 unions were major supporters and they want to protect white workers from having to compete with black workers in construction.”

Williams also points out that the tactic has been used worldwide. During the Apartheid era in South Africa, whites used a minimum wage law to price blacks out of jobs, in order to insure the jobs are kept for themselves.

Minimum wage laws do not help low-skill workers. They do not help consumers. They do not help producers. They arbitrarily hike the price of goods and services, dismantle the first rung of the employment ladder, and promote the principle that your labor is not your own means to pursue happiness, but rather a privilege granted by permit.

→ (This past January, the minimum wage in California was increased to $16 an hour. In April, fast food workers get bumped up to $20 an hour and health care workers, depending on what type of facility employs them will earn a minimum of $18, $21 or $23 an hour.)