Minimum Wage - it's more government!

Let’s take a look at the issue of minimum wage. It’s pretty easy to understand. You go to work for someone, and the law prescribes the lowest wage that you must be paid for the hours that you work.

From an employee perspective, it sounds pretty great. I'm guaranteed to earn at least the minimum wage when I work. Okay, that’s simple enough.

As an employer, I won't like being told what I have to pay per hour for help, but if it's the law, I'll follow it.

Like most individuals with a libertarian mindset, we need to be thinking about the effects of such laws on our liberty and free enterprise.

As we examine this issue, let’s keep in mind the employee perspective as well as that of the employer. Also, let’s be mindful of what happens in the marketplace. The picture will become much clearer if we carefully look at this issue from these multiple perspectives.

Proponents of minimum wage increases would have you think only about the benefits to the employee. They tout that is helps bring people up from poverty. Okay, so let's see what it does to:

  • liberty
  • free enterprise
  • the marketplace
  • employment
  • poverty

Liberty

Let’s look at how such legislation affects individual liberty. First off, an employee should be able to negotiate with an employer for a wage that they believe they are entitled to based on their skill level and value to the employer. Whether it's a high or low wage, it shouldn't matter, but the minimum wage law says it can't be too low.

That's gotcha #1 - the government is telling me I can't accept a low hourly wage. Why not? I should be able to balance what I earn in wages against the benefits that I want.

Let’s say I want to work primarily for benefits, and my spouse will meet our primary financial needs. With minimum wage laws, the lower wage/higher benefit situation that I seek isn’t legal, even though me and my employer both agree to it.

It seems to me that "at will" employment should also be "at will" with respect to wages and benefits. It’s a situation that shouldn't be at the government's will.

Free Enterprise

From a standpoint of free enterprise, the employer should be able to offer any wage they please, but these type of laws forbid that if the wage is deemed to be low. Low in what respect? Well, so low that you're kept in poverty.

What business is that of the government? Why should government have any say at all about what one private party wants to offer as a wage to another? Likewise, why should government have any say as to what an employee accepts as pay for their work? Isn’t this a matter of individual choice?

Part of free enterprise and a free society is free choice, and these type of laws eliminate part of our choice and self-direction.

There is a philosophy in economics that says there is no such thing as a bad deal when two parties agree to something. The reasoning behind it is simple. Let's say one party offered something at a certain price, and the other part accepted. It's a good deal because one valued the item as much or more than the cost, and the other valued the money as much or more as the item that they gave up in trade.

The same is true if one party offers a certain wage and the other party accepts it. Both see the value of what they will get in return.

So, what is it again that the government needs to regulate? If we let them regulate pay, then it follows that we should also get them involved in regulating the cost of things that we buy with our pay. Should the government be establishing the minimum sale price for cars?

It seems clear to me that the only wage related thing the government should be regulating is the pay that it offers its own employees. The government needs to stay out of the private affairs of employers and employees.

If the government bureaucrats were so good at running an enterprise, they would be doing so as employers themselves and setting the wages for their employees, instead of trying to interfere with free enterprise and the wage setting practices of others.

Marketplace

Consider the marketplace in general. How does setting minimum wages affect the marketplace?

In a free market, you either find a job that pays what you think you’re worth, or you create your own employment and earn what you can through that. Is “working for others” the only viable alternative in the marketplace? Of course not.

What about not working for the guy who won’t pay a decent wage?

I did just that when I was very young. One day I was looking for a job when I happened onto a sign at a sporting goods store that indicated it was seeking some help. I went in to discuss the matter with the manager.

He explained the job and offered $1.80 per hour. Knowing that I could make $4 per hour elsewhere and perhaps $5 per hour, I simply declined the opportunity, thanked the man for his time and never looked back. As an employee, I am part of the marketplace. If enough kids walked out of the store and refused the meager pay, the employer might have to raise the amount offered as a wage.

That’s how the marketplace works - it influences prices and wages all by itself, with no need for the government to step in. Many of us have been hoodwinked into thinking that the only two ways of getting ahead is with government protection and being part of a union. Most often it works best when you do it yourself.

I didn't need the crummy-paying job. Even as a young teenager, there was always a way to make money being self-employed. I cut grass, trimmed bushes and helped others. I didn't need the "help" of government to secure me a job at minimum wage - I went out and did better for myself.

We’ve become so accustomed to working for others that we often disregard opportunities to work for ourselves – if we ever think about the opportunities to begin with.

Employment

Let’s look at an example of how the minimum wage affects employment. Let’s assume that I hire 3 people to work for me at $5 per hour. That’s $15 an hour for my helpers. According to what I am making per hour from my customers, the $15 per hour works well for me. It’s what I can pay for help and still make a decent profit. That’s why I am in business in the first place.

Now, along comes the government and they mandate that I pay $7.50 per hour as a minimum wage. They haven’t mandated that I raise prices, charge my customers more, or reduce the cost of doing business. They haven't mandated that my customers pay me more either. They just mandate that I pay my employees more.

So, I now have to shoulder $22.50 an hour for my help.

The government didn’t give me better employees with more skill, interest, enthusiasm and value, they just gave me more expensive employees; all in the interest of doing better for the employee.

In this scenario, I have three choices as follows. My first choice would be to cut one of my employees or reduce their hours. In either case, I'll have to do the same with less so I can earn the same amount of money as before. In this case, an individual loses their job or they all get a reduction in work hours as a result of the minimum wage hike.

My second choice is to pass on my added costs to my customers and that can lead to two things: 1) a reduction in business because of higher prices; or, 2) the cost of living for my customers going up. Neither is desirable for me because I want to retain my customer base, and if prices go up for my customers, this cost will eventually be passed on elsewhere.

The increase in wages is seen as an increase in prices for every business that depends on minimum wage employees. Since the economy is very much interconnected, higher wages generally raises the cost of living for everyone, including those earning a minimum wage.

My third choice is to replace an employee with a machine that makes the work easier and gives better quality results. This results in me making an investment in technology rather than individuals, and it still results in loss of employment for one or more employees.

And yet another unintentional consequence of minimum wage increases could be that I don't hire entry level personnel anymore. The constant increases in minimum wage can push the pay for helpers into an area reserved for more experienced individuals. As a result, I'll offer fewer opportunities for entry level skill building at my place of employment.

Poverty

The idea that minimum wage helps those in poverty just can't be true at all. If it can push people out of employment and prevent others from joining the workforce at entry level positions then how can that be beneficial to those in poverty?

Poverty is whipped by giving people opportunities, not government guarantees. Have we learned nothing from the millions that we have trapped in the dependency of a welfare system?

Also consider that many of the minimum wage earners aren't trying to support a family, but are part-time employees that are members of a family themselves - families whose income is well over the "poverty line."

A 2001 study by the Employment Policies Institute, titled "Does the Minimum Wage Reduce Poverty" is revealing. It summarizes the findings of their researchers by saying:

"This study by economists Richard Vedder and Lowell Gallaway shows convincingly that minimum wages, because of inefficient targeting of the poor and unintended adverse consequences on employment and earnings, are ineffective as an antipoverty device."

When they say "inefficient targeting of the poor," what do they mean? Quite simply, "poverty is primarily a phenomenon among nonworkers." So, if you don't work, you don't earn a wage, even a higher wage prescribed by government, so an increase in the minimum wage doesn't help you get out of poverty, because you're in poverty because you're not working in the first place. That's clear.

We've already discussed unintended consequences and these are also clear: employees lose their jobs or have reduced employment hours, and others are prevented from entering the marketplace at entry level positions where they can learn a skill.

According to the census bureau, only about 10% of those at or below poverty are working full-time, so how is it that the other 90% who don't work or don't work full-time are going to be served by an increase in the minimum wage? I just don't get it.

Clearly the government proponents of a higher minimum wage aren't thinking clearly in this regard. Poverty isn't addressed by raising the minimum wage because it:

  • reduces unskilled worker access to entry level jobs in the market that provide training and experience
  • applies mostly to part-time or part-year employees in high school and college
  • isn't a long-term source of income - entry level employees usually get raises within the first year
  • has gone up less than $6 per hour in 70 years - a glacial pace by any standards
  • doesn't apply to all employees

The Solution

It's clear that the whole idea of minimum wage is another government misadventure that needs to end. Let's abolish the minimum wage laws and let the economy work to reach an equilibrium on it's own.

Government is largely the cause of our financial woes, and yet they also believe they can create a solution. They can't, at least not using this approach. No libertarian minded individual could possibly believe that the government has a solution, when they are the cause.

Done with Minimum Wage, take me back to Market Economy

Help others defend their natural human rights, even when none of yours are at risk. It's just a matter of time before government turns its focus on you. It's then you'll need others to return the favor and support the rights that you hold dear.






Nothing in human history has shown itself to promote success like freedom. Yet, liberty is under fire on a daily basis from those who desire to be your lord and master.






It takes courage to be free, and far greater courage to allow others to be free. May you have that far greater courage.