Wednesday, February 07, 2007

Abolish the minimum wage

It’s official. Nancy Pelosi and her Democratic cohorts have begun 2007 with a disastrous piece of legislation. The House passed a bill which will increase the minimum wage from the current $5.15 to $7.25 over the next two years. The vote in the House was 315-116, a testament that the 82 Republicans who voted for the bill would know the wrath of their constituents had they voted against it. Not only is raising the minimum wage detrimental to the calculus of the American spirit and founding, but simply having one to begin with is what I find most upsetting.

An increase in the minimum wage is popular with the political masses; just ask the Democrats. This popularity is founded in the actual purpose of raising the minimum wage, not in its realization or practical outcome. Personally, I don’t want any American citizen to not have enough money to support a family, to not afford health care, or to not be able to pay their bills. There is a sense of altruism behind the policy of hiking the minimum wage, and just having one in the books is at least “good” in theory. Yet the theory is irrelevant if the pragmatic implementation of the policy has more negative than positive effects.

Many supporters are in favor of the increase because they want low-income workers to make more money. Yet the statistics tell a different story altogether. The people earning minimum wage, as of 2005, represent only 2.5% of the hourly paid workforce in America. Of these 2.5%, about half of these people are under the age of 25, and a quarter of these workers are ages 16-19. In fact, the average household income for the teenage minimum wage workers is roughly $64,000 per year-well above the poverty level. This means that increasing the minimum wage would force employers to pay teenagers, most of whom are still in school and don’t really “need” the money to live off of, more money an hour. The principle of altruism has lost much of its steam once realizing these statistics.

The negative aspect is not that kids shouldn’t be making more money or that they essentially should never receive money if they work for it. Rather, an increase in minimum wage either significantly increases unemployment, or increases the cost for the consumers.

For example, pretend for a moment that you own a restaurant. Let’s say you need ten people to effectively run this small restaurant and you decide to pay them each $6.00 an hour. Yet, the federal government decides to get involved in the marketplace and subsequently raises the minimum wage to $7.25 an hour. As a business owner, you can do one of three things:

A) You could keep all ten on staff and take a profit-cut for yourself, since the returns will be less now that you are paying your employers a significant amount more. (No capitalist or business owner takes this option, trust me)

B) You could keep all ten on staff and increase the prices for the consumers to retain the same profits you were making when you paid your employers $6.00 an hour.

C) You could fire 2 of your employees and still maintain the same profits as before.
What do B and C, the only two practical outcomes, have in common? They are both negative effects on the economy. One option increases unemployment, the other option increases prices for the consumers. Minimum wage has this disastrous effect on the economy.

Yet raising minimum wage is not the ideological culprit for libertarian minded thinkers. The culprit is the minimum wage itself. The market should be able to dictate the wages of the individual workers. Why does the government have a right to tell me how much I have to pay a certain worker for doing a certain job? The answer is that they should not be given that power. Minimum wage is a fanciful bi-product of government coming to the rescue in the marketplace, when the majority of problems can be solved by letting the marketplace rescue itself.

If Wal-Mart were to open up a store and pay employees $2.00 an hour, what would happen? Nobody would apply and the business would collapse. Kmart would then take over the market by offering their employees much more for an hourly wage. Wal-Mart in return, understanding the market, would begin a competitive bidding process for labor if they wanted to keep their business intact. Since labor is a commodity, the competitive marketplace will position people into jobs that pay good, or else the worker can get up and become employed elsewhere. That is and should be the beauty of a free society.

In the end, raising the minimum wage does nothing to help low-income workers and only brings unemployment and higher consumer prices. Even the supporters of minimum wage acknowledge that too large of an increase in the minimum wage will be harmful, otherwise why not raise the minimum wage to $15 or say $20 an hour?

An abolishment of the minimum wage is necessary to reduce the role of government and to allow the market and business owners maximum freedom in investing their own money.


Anonymous said...

excellent analysis of this corrupt socialistic policy

Anonymous said...

Since Wal-Mart has already put all of the competition out of business they could go ahead and pay $2.00 an hour and the captive work force would have little choice but to take the job. Your analysis is FAR from complete. In fact, Wal-Mart currently pays well under a living wage, fails to provide adequate benefits and its employees become a drain on our economy as they are forced to turn to government healthcare in order to take care of themselves and their children.

Those are the facts. This post looks pretty on paper, but the truth is really much more ugly.

mbdil said...

The workforce would hardly be captive in your scenario, anonymous. There would be plenty more of those restaurant-owner type situations to compensate for the difference. If the deal sucks for the employee, then they don't have to take it.