Once again Democratic politicians want to increase the dosage of
a popular but extremely toxic form of public policy snake oil. In
his State of the Union message Tuesday President Obama proclaimed,
“Tonight, let’s declare that in the wealthiest nation on earth no
one who works full time should have to live in poverty, and raise
the minimum wage to $9 an hour. We should be able to get that
done.” Pat Quinn, the governor of Illinois, last week proposed
raising his state’s minimum wage from the current $8.25 an hour to
$10 an hour.
A spokesman for Governor Quinn said, “The governor feels very
strongly that nobody should work 40 hours a week and live in
poverty. It’s obvious the governor feels such an increase will be
good for the economy and good for workers who drive our economic
growth. So many people are struggling to make ends meet earning the
basic minimum wage—and these ends never get met.” If that’s what
the governor thinks, he couldn’t be more confused.
As H. L. Mencken observed, “There is always an easy solution to
every human problem—neat, plausible, and wrong.” Minimum wage laws
score extremely well on all three counts.
Minimum wage laws are an important public policy issue not only
for the damage they do to individuals and the economy, but also as
an illustration of the profound difference between liberal and
conservative approaches to problem solving.
The federal minimum wage for 2013 is $7.25. San Francisco, not
surprisingly, has the country’s highest minimum wage—$10.55
When I taught economics, when possible I liked to use the
“Socratic method,” which is essentially teaching by asking
questions. The Socratic method helps the student deduce the answer
by using what he already knows.
Most people, especially college freshmen and sophomores, feel
that minimum wage laws are beneficial. When discussing the topic I
would ask, “If a minimum wage of $8 is better than one of $5, why
skimp? Why not make the minimum wage $10, or $20, or $30?” Passing
minimum wage laws is relatively easy. If eliminating poverty is
that easy, why not go all the way? Why be so miserly? It’s not your
money you’re spending. Go big or go home!
Most people realize that a minimum wage of $30 or $50 an hour
would not work or be a good idea. They recognize that employers
simply could afford to hire far fewer people at such wages. Most
people can appreciate that not everyone is worth $30 an hour.
Minimum wage laws at those levels would do major damage to the
economy. Less obvious is the fact that virtually any minimum wage
does the same kind of damage.
A favorite talking point of minimum wage proponents is the
so-called “living wage.” They argue that the minimum wage is the
absolute least a person can survive on. But why settle for mere
survival? Why not set it high enough to move every working person
into the middle class?
President Obama said in his speech, “But today, a full-time
worker making the minimum wage earns $14,500 a year.… Even with the
tax relief we put in place, a family of four who earns the minimum
wage still lives below the poverty line. That’s wrong.” A minimum
wage of $30 would give that family an annual income of $60,000. Go
for it!
Minimum wage laws are one of the many ways the government
commandeers private companies into its ill-conceived crusades for
solving societal problems (the “war on poverty,” for example). It
is essentially a form of “taking,” that is, the taking of private
property for public use without compensation. Such laws ought to be
considered a violation of the Fifth Amendment. Minimum wage laws
force private companies to supposedly help solve the societal
problem of poverty. If you start a business, be prepared not only
to provide a product or service for your customers, but also to
provide a service for politicians.
It’s an easy and alluring fix for politicians. Rather than
having to tax the private companies and spending the proceeds on
welfare, they dictate that the private companies do it directly.
It’s deceptively simple and straightforward. Besides being
insidious, it’s also counterproductive. Minimum wage laws do not
decrease poverty, they actually increase it, probably more than any
other single law.
You could have a job that pays $4 an hour where you learn
something, develop good work habits, and increase your marketable
skills, or you could have no job, earn zero dollars an hour, and
have no chance make progress. The true “minimum wage” is not $7.25,
it’s zero. The minimum wage doesn’t assure a “living wage,” rather
it assures a job-killing wage.
Is a high school dropout with no work experience worth the
minimum wage? Are all jobs (sweeping the shop floor, for example)
worth the minimum wage? At a time when the nation is desperate for
“job creation” the minimum wage is by far the worst job destroyer.
Minimum wage laws effectively outlaw all jobs with less economic
value than the minimum wage. Rather than appreciating the fact that
there are millions of job situations in our economy, such laws
apply the government’s typical, crude, one-size-fits-all
approach.
Furthermore, when someone is paid $7.25 an hour, the total cost
for the employer is considerably higher. Various payroll taxes and
fringe benefits typically add another ten to twenty percent or more
to the cost of hiring someone.
The private sector is based on voluntary exchange. Employers are
not forced to hire a certain number of workers. If a worker adds
less value than the minimum wage, an employer would lose money by
hiring him. The fundamental problem is that some people have an
insufficient value on the labor market. That is the problem we need
to focus on if we want everyone to have a “living wage.” Reforming
the dysfunctional public school system would be a good place to
start. Minimum wage laws attack a symptom instead of its cause,
another distinctive characteristic of liberalism.
So long as our economy relies primarily on voluntary exchange,
so long as any individual freedom remains, reliance on force and
coercion will have limited success. Self-interest, ingenuity, and
individual initiative will largely frustrate the grandiose schemes
of the control mongers. The fact that everyone does not simply and
sheepishly acquiesce when force is applied is the leading
explanation for “unintended consequences.” It is also why one law
usually begets another.
Liberals have an abiding faith in the effectiveness of force and
coercion. They aren’t the least bit hesitant to use force in
achieving their goals. Obamacare is one gigantic application of
force to our society and economy. Social Security forces every
employed person to devote part of his income to a government-run
pension plan.
Liberal politicians don’t even mind that minimum wage laws
destroy jobs and create more poverty. More poverty simply provides
them with more opportunities to do what they love to do, that is,
increase the size and scope of government. The jobs destroyed by
minimum wage laws just mean that more money needs to be spent on
unemployment compensation, food stamps, and redundant job-training
programs.
The government can pass a law defining a legal “minimum wage.”
It cannot, however, pass a law defining the “equilibrium wage” (or
the equilibrium price of anything). An equilibrium price is that
price where the quantity supplied equals the quantity demanded, the
price where the supply and demand curves intersect. It is the
“market clearing” price, the price where there is no shortage or
surplus.
A legislated price almost always results in a shortage or a
surplus, depending on whether it’s set above or below the
equilibrium price. Rent control laws are set below equilibrium
rents, so the result is an apartment shortage. Minimum wage laws
are usually above the equilibrium wage for low-skill, minimum
experience workers. The result is a “surplus” or excess supply of
such workers. In labor markets excess supply is called
unemployment. Unemployment does far more harm to individuals and
society than wages that are defined by someone as unfairly low.
Shortages and surpluses represent frustrated voluntary
exchange.
There are people who would like to work for $4 an hour, and
there are employers who would like to hire them for that wage.
However, for them to enter into such a transaction is a criminal
act. Some far-away clueless politician has arbitrarily decided that
$4 an hour is not fair and not enough to live on.
The clearest evidence for the damage done by the minimum wage
laws is the unemployment rates for teenagers, particularly minority
teenagers. Today the overall unemployment rate in the U.S. is 7.9
percent. For those 16-19, the rate is more than twice as high (20.8
percent) and for black teenagers the rate is more than four times
as high (37.8 percent).
There is perhaps no law more popular and less questioned by
liberals than minimum wage laws. Tell a liberal that you are
opposed to minimum wage laws, and he or she will look at you as if
you are a heartless ignoramus. I’ll bet you could not find a single
liberal who has the least degree of doubt about the wisdom and
effectiveness of minimum wage laws. Being in favor of minimum wage
laws gives you the satisfaction of thinking you’ve done something
good even if the actual results are harmful. Liberalism is about
feeling good about yourself. It is public policy based on
self-indulgence. In liberal never-never land, intentions are all
that matter. Intentions are the be-all-and-end-all of public policy
choices. Results be damned!
Minimum wage laws are so popular and such an ingrained public
policy, even conservative politicians refrain from vigorously
challenging them. That’s understandable but unfortunate. It’s not
that hard to make the case against minimum wage. Such laws do
significant and lasting damage. Running away from the debate is
desertion in the heat of a very important battle. Minimum wage laws
present a golden opportunity to explain the bankruptcy of
liberalism.
Photo: UPI
