New School Politics

Abolish The Minimum Wage

Ryan | 17 01 2007

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Given the outcome of the midterm elections and the passage of a minimum wage bill in the House of Representatives it is more than likely that a national increase in the minimum wage will come into effect in the near future. Six states voted in favor of minimum wage increases—Arizona, Colorado, Missouri, Montana, Nevada, and Ohio—with four of the six states affirming the proposals with at least 65% of the vote. Now that Democrats have control of both houses and the vast majority of Republicans have and will continue to capitulate on issues of economic freedom, such a measure will probably be approved by the Senate.

A veto from the President is unlikely. In a press conference the day after Election Day, Mr. Bush described the issue as “an area where I believe we can [find] common ground.” Now that the President has let his guard down, and the House and Senate are without any obstacles, it should be smooth sailing for any proposed minimum wage amendment (never mind its details).

But, Mr. Bush is mistaken. This is not an issue for which there can be any compromise. A minimum wage is an irrational economic policy. It is not conceived by economic science but rather is product of the childish, emotional impulse of most collectivists and was simultaneously accepted by those who masquerade as “fiscal conservatives.” Not only must any minimum wage increase be struck down, but any remnants of a “minimum” or “living” wage must be eliminated; the only proper policy for Congress to take on the minimum wage is to abolish it.

The underlying intention of the minimum wage is to improve the incomes of the poorest workers. The failure of this logic is first that it assumes that businesses will continue to hire workers even at a price above their worth. Labor is like any other economic good or service; its price is determined by supply and demand, and its value is tied to its productivity. In a free market economy a capitalist pays a worker $5/hour because that is the maximum cost he is willing to pay, given the productivity of the labor. He has already implied the fact that he will not pay $10/hour for that labor—it is not nearly worth that price.

If government were to mandate that no used car be sold below $15,000 would that ensure the prosperity of all used car salesmen? Of course not. If the car they are selling is not worth that price people will simply not buy it. When posed with the choice of buying a car worth $15,000 and a car worth $10,000–but priced at $15,000–the buyer will not pay that extra 50% for the overpriced car. In that case the cars worth less than $15,000 will simply not be sold. The same idea applies to labor. If the minimum wage is set to $10/hour those whose labor is worth less will simply remain unemployed. Indeed those who the minimum wage was intended to help are hurt by it the most.

Despite wishful speaking, a decree by the government cannot create more wealth; it will not make a man worth more, it will not increase the demand for his labor (it will actually decrease it), the minimum wage simply makes it illegal for a poor man to be employed (at market price). It has and it will continue to curtail employment of those whose market price is below the minimum wage.

Why else would a minimum wage be advocated by racists and labor unions all over the world and throughout history? Because it forces their competitors out of the market (for racists, minorities; for unions, cheap labor). In the United States, at every single congressional hearing ever held on a minimum wage amendment, an organized labor representative has been present to argue the case for an increase. But why? Virtually all unionized labor makes far more than the minimum wage. Those unions that have pull on Capital Hill would not nearly have their wages affected by a minimum wage hike. The reason these unions petition for such laws is because it eliminates competition from cheaper labor by making it illegal for such cheap labor to exist.

America’s first minimum wage law (called a “prevailing wage” in the literature of the act) did just that. The Davis-Bacon Act of 1931 was passed in part to stop black construction workers from “taking jobs” of white workers by accepting lower wages. The pet issue of the Congressmen who introduced the bill in the House, Robert Bacon, was preserving America’s “racial homogeneity.”

So who is right, who would the minimum wage actually effect? It is not the single, middle aged mother of three as most bleeding heart liberals have perpetuated; it is the teenager working a summer job or after school to earn a few bucks (especially young blacks and other minorities). According to the 2003 US Census, of the 7.8 million Americans that earn below $6.65 an hour, 72% of them live in a household whose income is at least 50% above the poverty line. The average household income of those 7.8 million workers was a respectable $40,000. According to the U.S. Bureau of Labor Statistics, 63% of minimum wage workers receive raises within one year of employment, and only 15% still earn the minimum wage after three years. Furthermore, only 5.3% of minimum wage earners are from households below the poverty line; 40% of minimum wage earners live in households with incomes $60,000 and higher; and, over 82% of minimum wage earners do not have dependents (i.e. children).

In 1948 (while the minimum wage was negligible due to post-war inflation), the unemployment for black teenagers was 9.4% while it was 10.2% for white teenagers. Today, 16% of white teenagers are unemployed and 32% of blacks (aged 16-17). Still, the fact of the matter is that even if the minimum wage raises the wages of all lower paid laborers, it would still manage to hurt everyone in the economy. The conceptual error of many proposing a minimum wage is that they mistake what signifies economic prosperity. The truth is that higher wages do not mean higher purchasing power. Purchasing power requires that there be something to purchase in the first place—the requirement for increasing purchasing power is greater productivity. But by increasing the costs of production (in this case, wages) government will curtail production in the present, and by decreasing real profit margins, and thus savings, it will further decrease production in the future. If the economic well being of people could be improved by simply increasing wages then why stop at raising the minimum wage to $7, why not make it $50, or $100, or $10,000 per hour? That would be great, wouldn’t it?! If the government just kept raising the minimum wage it could make us all millionaires! But, of course, that’s ridiculous. Yet it’s only the logical conclusion of the idea that a minimum wage will make people richer. No matter what, in economics you cannot escape the fact that wealth cannot be created by force. Government mandates produce nothing; they only consume wealth, destroy savings, and distort the incentive to produce. Production requires that individuals apply their minds to the practical problems of man’s existence in pursuit of their own self-interest and be free to do so. In the end that leaves us with only one issue—the most important issue—the mortality of the minimum wage. Perhaps the most preeminent “collectivist” economist in America is Paul Krugman. He summarizes the ultimate reason to establish a minimum wage: “In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price–determined by supply and demand…The amorality of the market economy is part of its essence, and cannot be legislated away.” However, calling the price system and free market immoral is nothing more than an attempt to live outside of reality.

The price system exists because of individuals who pursue their self interest and deal with their fellow men as traders of value in order to do so—nothing is more moral than that. Under a price system people do not deal with others as slaves or primitives or sacrificial animals, they deal with them as men, who have a right to their liberty. They do not deal with them by force, but by reason and through voluntary exchange. The fact of the matter is that a true price system exists because of men that have capacity to produce and trade, and are free do so.

The minimum wage is immoral because it is the opposite of this. It is a blatant violation of liberty. The minimum wage is a perfect case of the government initiating force against individuals. People have the right to enter into any mutual voluntary contract they wish, because it is voluntary. If our government or any other government respects the moral absolute that man has rights and it is immoral for anyone to use force against that man’s life, liberty, or property, then it must abolish the minimum wage.