The Minimum Wage

Let’s not kid ourselves. No one besides a few crazies are actually advocating the minimum wage be more than doubled to $15.00 an hour. And besides, it isn’t going to happen. Not for a long time anyway. In reality, the minimum wage will be increased to $9.50 or perhaps as high as $10.90 an hour. So all the talk about the very real disaster of raising the minimum wage to $15 an hour is unnecessary.

Another thing that should be said at the outset is when a person earns five, ten, or fifty dollars an hour, that isn’t an indication of how much the person is worth. This is used as a figure of speech, but no one can say that Bobby or Suzy is only worth x dollars.  A person’s worth is an intangible aspect of who they are that takes into account a score of different factors and is incalculable and impossible to determine.

So who earns the minimum wage? You might have read statistics in the news about 37% of minimum wage workers are between the ages of 35 and 64. And that may be true. But, let’s look at it from the other side. Only 3% of the workforce over the age of 25 earn the minimum wage according to the BLS. That’s an astonishing number. That’s a lower number than the yearly high school dropout percentage. That’s lower than the unemployment rate, even by the government’s own standards. On top of that, a person who is earning the minimum wage does not continue to make the minimum wage forever. Perhaps there are a few, but the vast majority earn raises 6 months or a year after being with the same employer. While others who were earning above the minimum wage lose their job, move, or otherwise find themselves out of work for a time before re-entering the workforce at the minimum wage.

So why are we even discussing this? Because we care. We care about the least well off and the most vulnerable in our society, and we want them to do well. But that probably isn’t anyone you know. It isn’t a stay at home mom going out to get a part time job after the kids go to school. And it isn’t teenagers living in the suburb who get a minimum wage job for gas money. I would say it is first men and women getting out of prison, and then single mothers, minority teenagers might come in third, and we’ll come to them in time.

An employer doesn’t need to be a bigot, a sexist, or a racist to discriminate. He interviews a 30-year-old married man and a 30-year-old single mother with 3 kids. If the two are anywhere close, there’s no doubt who will get the job. Married men don’t miss work when their kids get sick. It isn’t fair, but being more or less qualified is in the eye of the beholder. Who can say, and how can it be proved, that Suzy should have been hired at the dollar store rather than Johnny? The minimum wage outlaws competition on the labor market below a certain point. If Suzy and Johnny are both college educated she can undercut him by offering to work for a slightly lower wage, but in this situation the rate is set by the state, and all she can do is shake the interviewer’s hand and go look elsewhere.  That is sad.

The same is true, and even more pronounced when dealing with the six hundred thousand people released each year from prison. 75% of whom are released on conditions, such as paying court costs, meeting regularly with a parole officer, and holding a job. Oh and it is entirely legal to refuse to hire convicts. There are whole professions where they are prohibited from working. But the minimum wage doesn’t allow them to compete, and when faced with paying 58 dollars an hour for labor, do you want a 30 something man with a family or a convict? If this 30 something wants $8 or $9 an hour and these are your only two applicants then your choice is made easier, but if this guy is happy to take $7.25 then why bother with the baggage of a convict? Would you hire him if you could get a dollar an hour discount? Maybe. But that’s off the table. So this fellow has 2 more weeks to get a paycheck to pay his first court payment or he goes back to prison, and he still hasn’t even found a job.

It’s a shame McDonald’s gets such a bad rap. No, they don’t pay much, but they did hire these people. And very few people go to McDonald’s first. They work there, and at Dollar General, and cutting grass not because the work is rewarding or glamorous. They work there because no one else will hire them.

For teenagers it’s not much better. Teenagers are immature, inexperienced, they want off for games, hot dates, and summer camps, and they are the most likely to quit. Not to mention they are clumsy and awkward. Who wants one of those around when you’re trying to run a business, when for the same money you can hire someone who isn’t going to quit to go on a road trip in 3 months. Why not hold out for someone who knows what a W4 is and has been around the block a time or two? No wonder the unemployment rate among youngsters is at 12%.  The same site will tell you that the unemployment rate among black youths is 20%.  The labor participation rate among black youths is 44%. So If I understand that right it means 64% either have jobs or are wanting jobs but can’t find them. Thus 1 out of every 3 black youths is unable to find work with the price floor set at $7.25.

I’m not nearly as interested in whatever economic benefits might be seen on the whole from the abolition of the minimum wage. Instead, I’m much more concerned with the wellbeing of people who want to work but can’t because to hire them at a competitive rate would be criminal. Remember the law says an employee must be paid $7.25. It doesn’t say that employee must be hired.

Minimum wage increases help capital intensive and skilled labor.

I do believe most people form their views on this subject with the wellbeing of the poor in mind. Yes a small business owner may be motivated by self-interest to oppose an increase in the minimum wage, but even they don’t seek to see the most vulnerable suffer.

Some are not dealing so openly. This is the skilled and semi-skilled segment, mostly represented by the labor unions. Suppose it takes two low skilled workers to turn out 10 widgets in an hour for $7.25 an hour each. That’s $14.50. While a more skilled worker, working with a tool, can turn out the same 10 widgets for $17 an hour plus 2 dollars an hour factored in for the expense of the machine, for a total of $19 an hour.

The more economical choice is to hire the two unskilled workers, forgo the cost of the machine, and pay $1.40 per widget. But let the minimum wage increase to just $10 an hour and now it makes more sense to start buying machines and hiring more skilled workers.

Employers don’t pay for time, they pay for output. They are buying production. As much as we hate to be away from our families, the employer doesn’t care about that, and by that he doesn’t care one way or the other. He isn’t giving you money for you to be away from your kids, he’s giving you money so he can get more output. Therefore, your time is only as valuable as the output you can deliver in that time. It is just as well for them to hire one man and buy a machine, as it would be to hire two unskilled workers. It only matters how much output per dollar can be obtained.

This is a little more nuanced argument than the straightforward higher minimum wages cost jobs, but then, for $4.00 many single mothers might find jobs as secretaries and receptionists in places that go without. And for $3.50 a swarm of teenagers might once again rush to your car to fill it up, clean your windshield and check the air pressure in your tires. I hear they still do this in New Jersey where the crazies passed a law making it illegal to pump your own gas. Looks like someone realized the rise in the minimum wage would cost jobs and they decided to do something about it.

Whether or not a person can survive on his own on $3.50 a week is beside the point. The point is you can survive better on $3.50 an hour than on nothing.  And if people are willing to work for a given amount who are you to tell them that their working for that rate should be illegal?

But let’s get back to addressing the problem, because we do care about the poor. The point may well be made that $2.00 won’t by a loaf of bread. But why not? I’ve been told over and over again about how my grandad and grandma got married on a paycheck of $53 dollars for 2 weeks. And they were never poor (at least not as they understood the word, that is, cold, or hungry, or out of doors). $106 a month now even for a single person wouldn’t even buy a one bedroom apartment, not even in Oklahoma, much less food or anything else. But why not? What’s happened? Why were the democrats content with a minimum wage of 40 cents in 1945 and $1 in 1950 and $2.30 in ’76 and 5.15 in ’97 and $7.25 in ‘07 but only for a while before insisting on an increase?

The minimum wage has gone up no less than 20 times since it was first established. But why? It’s because the government is messing with your money. They can only get away with taking so much through taxes without it costing them their jobs, so they take what they can get away with, and then siphon off the value of what they leave you.  This is why prices go up.  In truth, goods and services aren’t getting more valuable, not in general, with the exception of land and housing perhaps. Rather the value of the dollar is decreasing. So you get a job for $7 in 1990 and you’re doing okay, and if you aren’t able to get a raise, 25 years later you’re barely scraping by.  This outrage should have people out in the street. The government gives you a 2% pay cut each year by inflating the money supply and then plays the “hero” by increasing the minimum wage every so often. It’s a cruel gimmick.

Stop worrying about increasing the minimum wage and stop the inflation.

I will write more on this; not now because I have no time. I highly recommend, “What Has Government Done to Our Money” by Murray Rothbard, available in multiple formats in the link above.

For more readings on this subject you may refer to
Mark Thornton, Walter Williams, Walter Block, Tom Woods, and of course, Rothbard and Henry Hazlitt. And there is a ton of information on the subject at mises.org.

Leave a Reply

Your email address will not be published. Required fields are marked *