Eliminate the minimum wage

By Anish Krishnan

It is nearly impossible to discuss the minimum wage without making a few enemies, but it is a discussion that desperately needs to be had, because the minimum wage is both economically unsound and ethically bankrupt. Advocated with good intentions? Sure. But like so many other government programs brought forth with wonderful hopes, the minimum wage is another federal disaster that should be removed as quickly as possible. For one thing, it has repeatedly been shown to cause unemployment, and for a straightforward reason – a firm simply will not hire a worker whose labor is valued at under $7.25 an hour. Murray Rothbard pointed out the absurdity of the notion that setting price floors for any other good or service seems illogical but that doing so for labor markets does. A firm might be willing to hire 50 workers for $6 an hour, but when a binding wage floor is set, they must make cuts to production in order to avoid losses, and the easiest way to do this is through firing workers. Oftentimes the first workers that lose their jobs are minorities; the minimum wage allows racism and discrimination to guide employer decisions. A profit-maximizing firm would resist firing black workers if they were willing to work for less than white ones, but when the firm is required to pay them both over the market wage, it is often the black workers that go first, often leading to 20 percent increases in unemployment within inner-city teenage populations, according to a 1983 study by Robert H. Meyer. Laws like the minimum wage adversely affect teenagers entering the job market, as they usually have the least human capital. Martin Feldstein has pointed out the irony in public policy – we subsidize education but block opportunities for on-the-job training, the latter of which may in the long run prove far more crucial to financial success. Some have proposed partial minimum wages, price floors that cover some sectors but not others. But this solution introduces new problems: the unskilled workers unable to find jobs in the covered sector will move to uncovered ones where they will be paid even less due to artificially high labor supply, a process expanded upon in a 1962 study by Yale Brozen. The main argument I have heard used by proponents of the minimum wage is that eliminating such a price floor will cause wages to drastically fall and working conditions to worsen. But closer economic analysis (outside of oversimplified, unreliable Keynesian models) says otherwise. Firstly, although two workers might compete for the same job by offering to work at a lower wage, two firms will compete for the same workers by offering a higher wage, a phenomenon Eugen von Böhm-Bawerk termed marginal pairs. Given the great number of firms in existence and the large market for unskilled labor, wages will not likely keep falling to unbearable lows. Rather, they will reach various stable market levels. But what about working conditions? Minimum wage laws make them worse. Workers are not just compensated with money; they are also given non-pecuniary benefits and perks. Employees “protected” by the minimum wage law might see their salaries rise by 50 cents, but they will also see their employers make cuts to such benefits. Air conditioning, sick days, or even health care coverage will be cut in the name of efficiency and productivity. It is easy to blame “corporate greed,” but the profit motive in a free market leaves everyone better off. Problems arise when corporations receive special protections from the government – like the minimum wage. It is often successful businesses that lobby for such price floors, but they do it to eliminate their competitors—competitors that pay their workers less than a certain wage. Highly-skilled workers often unionize and demand minimum wage laws for the same reason, to cut out low-skilled competition. In the end, it is the young people, the uneducated, and the minorities who suffer from these seemingly benevolent laws, and that is why such price floors must be eliminated. We must rely on proper economic analysis, not emotional appeals, when it comes to public policy. Anish Krishnan is co-chair of Macalester Young Americans for Liberty. Anonymous Thu Mar 8 2012 15:34 Why on earth would you think that a company that resists paying minimum wage would offer benefits or perks? Anonymous Fri Feb 24 2012 16:15 “A profit-maximizing firm would resist firing black workers if they were willing to work for less than white ones, but when the firm is required to pay them both over the market wage, it is often the black workers that go first.”So, if the minimum wage didn’t exist, businesses would just pay black workers less, yet this somehow avoids using “racism and discrimination to guide employer decisions?”Maybe it’s easier to demand employers don’t practice racism, regardless of what the minimum wage is. Reverend Mitchel McAllister Fri Feb 24 2012 03:27 No. Eliminating minimum wage allows employers to pay as little as possible. We have seen what “deregulation” does: allows a corporation to do whatever it pleases with no checks and balances. If a corporation sees more value in devaluing their employees than in creating a happy workforce, that is what they will do. And we’ve all seen that first hand.