Minimum Wage law: It mostly hurts the poor
By David M. Woods
Published September 15, 2006, 10:27 am in Economic Issues.
Within the past couple of years or so, some twenty-odd state legislatures around the nation have raised the minimum wage for workers within their state. States that have not done so (such as my home state of Texas) are being pressured to follow suit. Their rationale, so the argument goes, is that the federal minimum wage of $5.15 is too low, and working people earning only that are struggling to survive.
But the minimum wage law, like all government-imposed price controls, is a bad idea. The law needs to be abolished, not increased. And here's why:
To begin, it's really not about business. The claim that an increased minimum wage would harm businesses is not a valid argument. Businesses can adapt and adjust. If the government makes it too expensive for businesses to hire unskilled workers, businesses will respond by simply not hiring unskilled workers, or hiring fewer of them. American businesses survive because they are flexible and resilient. Yes, the minimum wage law does impose a cost on them, but smart businessmen will figure out a way to deal with it.
No, the correct reason to oppose the minimum wage law is because it destroys jobs. This law does not guarantee a job to anyone. It simply says: you must either earn the government-imposed minimum, or nothing. The problem is, many end up earning nothing. It may be tough to survive on $5.15 an hour, but it's even worse trying to survive on zero dollars per hour.
The reason that unskilled (or low-skilled) workers don't earn much is because, well, because they don't have good skills. The one thing low-skilled workers need more than anything is experience and on-the-job training. And the best place to get that is with the old-fashioned entry-level job. But if the government makes it too expensive to hire unskilled workers, they never get that opportunity. You have effectively slammed the door in their face. Upper-level workers with good skills and ample experience are not really effected by the minimum wage law; rather, it's the people scratching and clawing trying to get in the door who are harmed. The argument that the minimum wage law is needed to "help the little guy" is clearly a bunch of bunk.
Advocates of government-imposed wage and price controls need to understand one simple principle: You cannot raise the value of something by an act of legislation. The price of labor, just like the price of everything, is determined by supply and demand. Anyone who has ever taken an economics course should have learned this on day one. As long as the market price is allowed to freely rise and fall, supply and demand will balance each other out. But if the price is artificially held too low, then supply is suppressed and demand is stimulated, and you have shortages. If the price is held too high, the opposite occurs, and you end up with overages. This is precisely what happens when wage controls are imposed: you have too much supply (workers) and not enough demand (jobs), otherwise known as "unemployment."
Naturally, the advocates of wage controls will respond by saying that the laws of economics apply only to inanimate raw materials, not people, and refuse to accept lines on an economist's graph as representing human beings, and besides, the laws of supply and demand are just an unproven theory anyway. Well, if that was true, and there really was no economic downside to wage controls, then why fool around with a measly minimum wage of $7 or $8 an hour? Why not $20 an hour? Or $50 an hour? Why not set the minimum wage to $100 an hour, or $1000 an hour? Personally, I would love to see my salary bumped to $1000 an hour!
The answer, of course, is that there most certainly is a cost to society when government bureaucrats stick their nose into private business affairs and tells people what to do and how to do it, all in a vain effort to create wealth and raise the standard of living by passing some law. Raising the minimum wage to $1000 an hour will not result in a $1000 an hour wage for all! All such laws cause negative, unintended consequences, despite their otherwise noble intent, and the minimum wage law is no exception. A very small group of very lucky workers might get a wage boost, but you cannot overlook the legions of unemployed out there who would be happy to have a job, any job, if only the government did not outlaw it.
It might feel good to "stick it to" those mean, greedy, nasty, stingy businesses and force them to give just a tiny portion of their undeserved profits to their poor, starving employees. But the businessman is not the one who is hurt by such regulations. Rather, it's the poor and downtrodden who are punished.
So what can be done about poverty and pitifully low wages? If the minimum wage is not the answer, then what is? Hopefully, there are alternatives. Let's start by lowering taxes so that working people can keep the fruits of their labor. It is estimated that about two-thirds of all income is lost to federal, state, and local taxes.
Next, let's all work to end the red tape, bureaucracy, taxes, rules, restrictions, and other impediments on businesses so that they can grow and prosper. Like it or not, the backbone of a healthy economy is having lots of businesses making lots of profits! The more money businesses make, the more they need workers, and as they hire more workers, the demand for labor rises, and as the demand rises, wages go up.
As for the individual workers struggling to make ends meet, here is what you need to do: Get a good education, choose a career wisely, work hard, and make good choices. Will it be easy? No! It will be very, very difficult! But sitting back and thinking that your good friends in government will take care of you just won't cut it.
This great nation of ours was founded on the principles of limited government and maximum individual liberty. Throughout history, we witness a clear and direct correlation between economic liberty and economic wealth. Yet today, too many Americans are ignoring the wise advice of our founding fathers, and instead clinging to this foolish idea that politicians and bureaucrats should call all the shots. Well, it didn't work for the Soviet Union, and it won't work for the USA either. Let's get rid of the minimum wage law, and let free enterprise work. If the goal is to help the poor, it's the best plan.
Comments & Trackbacks
No Comments/Trackbacks for this post yet...
This post has 3 feedbacks awaiting moderation...
Leave a comment