The Minimum Wage is Bad at Everything

There are a handful of commonplace and widely accepted political policies that I fundamentally disagree with – ideas whose legitimacy I once took for granted but which I now question and reject the more I learn about them. Perhaps none is more far-reaching in its scope and implications, more cloaked in mumbo jumbo and fallacies, and yet more espoused by my peers and the population at large that the minimum wage. Conventional wisdom says that supporting minimum wage should be a no brainer for all but sociopaths and rich fat cats. Here, I’ll attempt to explain why I think the minimum wage fails to pass muster in virtually every respect.

Background

Minimum wage laws began appearing in several states across the USA in the early parts of the 20th century before being enacted nationwide in 1933. The national minimum wage was challenged in the Supreme Court and overturned as unconstitutional, then revived in 1938 and later upheld by the Supreme Court on the grounds that the commerce clause of the 10th amendment grants the federal government authority to regulate wages. The minimum wage has increased over time and since 2009 has sat at $7.25/hour nationally or slightly higher in some states and cities. Recently, calls to increase the minimum wage to $15 or more have picked up steam and become law in a handful of cities and states. Most democrats and those on the left have pushed for higher minimum wages, led by figures like Bernie Sanders, Elizabeth Warren, and Robert Reich with concern for egalitarianism and poverty. Most republicans and those on right have pushed for the status quo or only modest increases, citing jobs and unemployment as a main concern. Calls to abolish the minimum wage entirely are rare.

Without further ado, I present to you the three main ways in which the minimum wage fails.

1) Not actually effective at fighting poverty and promoting egalitarianism

That’s right, the main reason why many on the left support a minimum wage is deeply flawed. Emperor Bernie Sanders has no clothes.

The minimum wage is just as much a restriction on workers as it is on employers. “Employers must pay workers at least $X/hour” is logically equivalent to stating “only people capable of earning at least $X/hour are allowed to work.”The true minimum wage, in fact, is always zero. Employment is not a guarantee, and millions in the USA remain out of work.

The minimum wage declares the least productive ranks of society unfit for employment. Those are the very parts of the population most at risk of poverty and most in need of help. Instead, the minimum wage ties their hands. Sure, certain people who are far from rich may come out ahead in the short run as they enjoy the same level of employment with higher wages. But this is hardly remarkable or unique. As an analogy, setting a minimum price of $10 for a sub might help Potbelly and Quiznos while putting Subway into bankruptcy. Does a fair or egalitarian society convert have-littles into have-nots so it can marginally benefit a few have-somes?

At the same time, the minimum wage eliminates opportunities for career growth. Nobody disputes the value of job experience when it comes to commanding higher pay and more job opportunities in the future. To illustrate this point, many candidates who push for a higher minimum wage simultaneously hire eager unpaid interns. Workers who earn a low wage accrue experience and knowledge just the same as ones who earn nothing – so why outlaw the former and allow (or even engage in) the latter? I don’t have a good answer, but I do know that it only serves to hinder upward economic mobility.

With this in mind, it might not come as much of a surprise that the early minimum wage movement was rooted partly in eugenics, racism, and nativism. Consider this quote by Frank Taussig in the bestselling 1911 textbook “Principles of Economics:”

We have not reached the stage where we can proceed to chloroform them once and for all; but at least they can be segregated, shut up in refuges and asylums, and prevented from propagating their kind.…

What are the possibilities of employing at the prescribed wages all the healthy able-bodied who apply? The persons affected by such legislation would be those in the lowest economic and social group. The wages at which they can find employment depend on the prices at which their product will sell in the market; or in the technical language of modern economics, on the marginal utility of their services. All those whose additional product would so depress prices that the minimum could no longer be paid by employers would have to go without employment. It might be practicable to prevent employers from paying any one less than the minimum; though the power of law must be very strong indeed, and very rigidly exercised, in order to prevent the making of bargains which are welcome to both bargainers.

2) Fewer jobs, yes, but also a less prosperous and productive society

It’s not just that the minimum wage can swell the ranks of the unemployed, it makes society poorer as a whole. The real wealth of any given society is entirely a product of the goods and services it produces (whether they are counted in GDP or not, perhaps a topic for another blog post some time). In the examples above, people who work less or not at all due to minimum wage restrictions represent real losses in wealth and production. People who get paid more to do the same job, however, don’t magically become more productive.

The repercussions are not always as visible or easily measured as the unemployment rate, but they make an impact through higher prices and fewer consumables to go around. And yet again, the meaningful consequences fall largely on those near or below the poverty level. A well off person’ wallet might barely notice the difference between a $10 or a $5 footlong sub, but it’s a different story for someone barely making ends meet.

3) My employment, my choice

This is an angle that’s rarely considered but personally I find it quite important. Many on the left understand and value the right to privacy and making choices for oneself, at least on certain issues. The signature issue where this applies, of course, is abortion. People in favor of abortion rights are not called “pro-abortion” but rather “pro-choice.” Perhaps people who favor abolishing the minimum wage should be called “pro-choice” as well.

If we want to call ourselves a free country, we should put some consideration towards giving people the right to make their own choices. For government to interfere in the private contracts or arrangements between consenting adults (employer and employee in this case), it should have a good reason to do so. Protecting third parties from harm, for instance, is a worthwhile concern. “I don’t think that’s enough money” is not. In this instance, I struggle to see where there’s any harm in allowing people to freely negotiate their terms of employment.

Ultimately, enforcement of the minimum wage falls on the use of force and imprisonment to punish and subdue violators. Call me old fashioned, but I think the use of such tools can only be justified in cases of clear harm and wrongdoing, and not as a way of imposing economic doctrine on ones neighbors.

Final Thoughts

Before I conclude, let me answer some possible reservations or retorts one might have about the arguments I laid out above.

  • “Employers need workers and will just pay the higher wages.” Intuition and data both disagree – and as far as data goes it’s hard to measure the number of jobs that have simply never existed due to the minimum wage. If you’ve ever wanted something but decided not to buy it because it was too expensive, you know how this goes. As the price of labor increases, employers will find ways to reduce the amount of labor they consume. As a prospective business owner one day myself, I can imagine roles that are a steal at $9/hour but not worth it at $15/hour. In the long term it’s simply unsustainable to pay employees more than they create in value.
  • “Putting more money in the hands of the working class is good for the economy because they spend it.” Even if we accept the premise that money in the hands of the working class is good for the economy, it’s not clear that the minimum wage actually accomplishes that and it may even be counterproductive. If the goal is to get more money to the working class, there are simpler and more direct ways to achieve that such as tax cuts or even a basic income guarantee.
  • “Countries in Europe have high minimum wages and are doing fine.” These sorts of correlational observations without accounting for the multitude of other factors in play are notoriously unreliable. Even then, this is not as true as one might assume. Many of Europe’s most prosperous countries actually have no minimum wage, such as Switzerland, Denmark, and even Sweden.
  • “Well, maybe the minimum wage is flawed but it’s still better than nothing as far as poverty is concerned.” Again, it’s not clear that the minimum wage helps the poor at all and it may even be counterproductive. And again, there are more direct and much more effective ways of combating poverty.

The minimum wage is a shining example of how no amount of good intentions or wishful thinking can make a bad policy into a good one and how conventional wisdom can be dead wrong. It exacerbates dire poverty, it makes us collectively poorer, and it needlessly infringes on our liberty and self-agency. I hope you’ll agree, and maybe bring up some of these points the next time a minimum wage increase is served up as a solution to poverty and inequality.

1Technically speaking, this is only truly equivalent if people are required to demonstrate their capability of earning $X/hour by finding a job that pays at least that, but you get my point.

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