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Minimum Wage, Maximum Intervention, Part 2


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All arguments for the minimum wage come down to this: since no family can survive on an income lower than the minimum wage, it is the job of government to mandate a minimum wage to keep people out of poverty. No matter how elaborate the argument, this is the bottom line.

Even if that were a true statement it would still not be a valid argument for the minimum wage. If someone can’t support a family on his salary, then he should not have a family until he has a higher salary. It is not the fault of business or society that an unskilled and uneducated worker decides to have a family and then finds out that he can’t make ends meet. Moreover, why should the person who is giving him a job be forced to fund his excess expenses? Indeed, why should anyone be forced to do so?

The case against the minimum wage from an economic standpoint has been made many times. It increases the price of goods and services, since it raises employers’ costs. It limits economic growth by increasing the cost of labor. And because it raises employment barriers for the unskilled and uneducated, it causes unemployment. As the Austrian economist Murray Rothbard (1926–1995) explains,

In truth, there is only one way to regard a minimum wage law: it is compulsory unemployment, period. The law says: it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result.

If raising the minimum wage will truly lift people out of poverty and not lead to unemployment, then why raise it only a dollar or two? That still won’t be enough for the typical family of four to make ends meet. Why not raise it to $12.50 an hour, as the Green Party advocated in its 2000 party platform? Why not just mandate that every employee is to be paid a minimum of $50 an hour? That would give everyone an income high enough that the government could end all transfer-payment programs. The trouble with a $50 per hour minimum wage is that the government could end all transfer payment programs but one — unemployment compensation. Massive unemployment would result from such a draconian increase in the minimum wage, as Rothbard again explains:

It is obvious that the minimum wage advocates do not pursue their own logic, because if they push it to such heights, virtually the entire labor force will be disemployed. In short, you can have as much unemployment as you want, simply by pushing the legally minimum wage high enough.

But if raising the minimum wage is bad economics, why is there always agitation for its increase? The answer is that raising the minimum wage has everything to do with politics and nothing to do with economics. If the members of Congress really wanted to help the economy, they would adopt a laissez-faire approach to the economy instead of an interventionist one.

Naturally, those who are looking for an entry-level job, those who are currently making the minimum wage, and those who make more than the minimum wage but stand to benefit from its increase — as long as they can get a job, keep a job, or receive a wage increase that keeps up with an increase in prices — are happy to see any increase in the minimum wage regardless of the consequences. And so are the politicians in Congress, who are trying to pick up votes while they pander to the numerous “anti-poverty” special-interest groups.
Other arguments against the minimum wage

In addition to the economic arguments, there are also philosophical and pragmatic arguments against the minimum wage.

First, all minimum-wage laws are based on the fallacy that selling one’s labor on the market is something special compared with selling one’s goods on the market. This Marxian fixation on the primacy of labor cannot overthrow the fact that the price of labor is ultimately determined by the forces of supply and demand, just like the price of anything else.

Second, if minimum-wage laws are needed to “protect” employees, then why aren’t minimum prices needed to “protect” employers? If the government is going to establish a floor under which wages cannot fall, then why not a floor under which prices of goods cannot fall? Why doesn’t the state just set minimum prices for everything? Unless one subscribes to the primacy-of-labor fallacy, this is the logical conclusion. This, of course, would be absurd. Can you imagine a store having to keep track of the minimum prices on a bar of soap, a pack of gum, a loaf of bread, and a can of peas — along with 50,000 other items?

Third, the making of minimum-wage laws by the government, whether federal, state, or local, means that the government must be able to determine the “correct” or “just” price for labor. But if the government can determine the “correct” or “just” price for labor, then it must also be able to determine the proper price of everything else. Allowing the state to intervene in the labor market merely opens the door for the state to intervene in every other market. Intervention begets more intervention.

Fourth, minimum-wage laws advance the notion that the government is responsible for our well-being and prosperity.

Fifth, all minimum-wage laws are based on the myth that businesses will exploit their workers without such laws. Supporters of the minimum wage act as though people would still be working for less than the original 25-cent-an-hour minimum wage without government intervention. But if businesses will exploit their workers without the minimum wage, then why do so many people make well above the minimum wage? Why can’t businesses just force people to work for the minimum wage? The theory of the exploitation of labor is the foundation of Marxism and has no place in a capitalist society.

Sixth, minimum-wage laws are egalitarian because they foster the notion that everyone should be paid the same regardless of the employee’s ability or the employer’s benevolence.

Seventh, minimum-wage laws imply that everyone has a right to a “living wage.” Everyone has the freedom to work or not work in whatever industry he chooses. Everyone also has the freedom to get or not get the necessary education or skills to obtain a good-paying job. But no one has the right to anything beyond what he and his employer agree to. If someone can’t “make it” on the minimum wage, he has a variety of options: find a better job, take a second job, send a family member to work, get the necessary education or skills to obtain a good-paying job, or simply work hard and get promoted out of the minimum-wage job.

Sure, entry-level workers at McDonald’s make the minimum wage, but McDonald’s needs managers too, and it doesn’t require a college degree. And who is more qualified to be a manager than someone who has worked his way up through the ranks? There is an imperative to work and strive to better one’s self, but there is no right to a “living wage.”

And finally, minimum-wage laws violate freedom of contract. They infringe the right of an employer and an employee to make whatever wage agreement they choose. This is what is done with most aspects of employment. According to the U.S. Department of Labor,

While FLSA [the Fair Labor Standards Act] does set basic minimum wage and overtime pay standards and regulates the employment of minors, there are a number of employment practices which FLSA does not regulate. For example, FLSA does not require: vacation, holiday, severance, or sick pay; meal or rest periods, holidays off, or vacations; premium pay for weekend or holiday work; pay raises or fringe benefits; and a discharge notice, reason for discharge, or immediate payment of final wages to terminated employees. Also, FLSA does not limit the number of hours in a day or days in a week an employee may be required or scheduled to work, including overtime hours, if the employee is at least 16 years old.

The U.S. Department of Labor says about the things the FLSA doesn’t require, “The above matters are for agreement between the employer and the employees or their authorized representatives.” That statement says a mouthful, for it is exactly the way things ought to be — for every aspect of employment. There is no good reason that what the government says about these things ought not to apply to wages as well.

The solution is obviously to abolish all minimum-wage laws, whether federal, state, county, or city.

If you thought that the Republicans in Congress were conservatives who favored limited government intervention in the economy — think again. Republicans are not at all averse to raising the minimum wage — as long as their plan is adopted. A recent proposal by Senate Democrats to raise the minimum wage to $7.25 in three increments over 26 months garnered the support of only four Republicans.

But a Republican plan to increase the minimum wage to $6.25 over 18 months received the support of 38 Republicans. Sen. Rick Santorum (R-Pa.), the author of the Republican proposal, was quoted as saying, “I have not had any ideological problem with the minimum wage.” This vote and this quotation show that the only difference between the Republicans and the Democrats when it comes to the minimum wage is the amount and the timing of its increase.

It is unfortunate that the party responsible for the minimum wage (the Congress) is also the only party that can abolish the minimum wage. Therefore, it is the members of Congress and their constituents who must be educated in the philosophy of liberty — a liberty that includes absolute freedom of contract when it comes to employment.

Part 1 | Part 2

This article originally appeared in the December 2005 edition of Freedom Daily.

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