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The Logical Argument Against Minimum Wage

Minimum wages are a touchy subject.  If you object to increasing the minimum wage, you are immediately branded as a person who is oppressing the poor and who won’t pay people a “livable wage.”  But like many ideas designed to help people, a thorough analysis demonstrates that there are no logical arguments that support the concept of increasing minimum wage, or even having a minimum wage to begin with.  Minimum wage is nothing more than a “feel good” idea.  It makes the people who pass such laws feel good about themselves, but those laws hurt the working poor and infringe on our fundamental freedoms and liberties.  This article examines the many very logical economic and freedom based arguments against minimum wages.

Minimum Wages Limit Workers’ Individual Freedoms – We don’t all need to make the same amount of money.  A minimum wage assumes that there is some magical number and if you are paid less than that number, you are being taken advantage of, oppressed or exploited.  But such an assumption ignores the fact that different people require different amounts of money on which to live. A retired worker, a student, or the spouse of someone whom already earns a good income may be perfectly happy to work for an amount below minimum wage for any number of reasons (proximity of job location, type of work, opportunity to learn new skills, hours, etc.)  With a minimum wage you remove the freedom of individuals to negotiate for the sale of their personal labor, at a price of their own choosing.

Minimum Wages Limit Business Owners’ Individual Freedoms – Ours is a capitalist society.  That means our economic well being is tied to business enterprises that employ people and provide goods and services.  But in order for our economic system to work, we need people to take their money and risk their capital by opening business enterprises.  You would think one right you would have as a business owner, who has put your own capital at risk, would be to purchase labor in the open market at the price you are willing to pay, such as to provide the goods and services you provide, without going bankrupt.  Further small businesses employ the most people and create the most jobs.  With minimum wage you remove the freedom of individual business owners to purchase labor in an open market, potentially increase the risk of bankruptcy for those small business owners, and further potentially reduce the number of small business entrants into the market, limiting economic growth.

Minimum Wages are Unfair to People Earning More than Minimum Wage – Let’s say one worker is making $10 an hour and another is making $15 an hour.  In a free market for labor, the worker making $15 per hour will have more education, more experience, be engaged in more complex tasks or will be more productive that the worker making $10 per hour.  So if you increase minimum wage to $15 per hour, you will now have two workers of unequal value, making the same amount of money.  That is patently unfair to the worker with the greater skill and ability.

Minimum Wage Increases Result in the Loss of Jobs – When minimum wage goes up, it is not always the case that the cost can be passed along to the business’s customers.  When minimum wages increase business owners will re-evaluate their labor pool, and in efforts to keep labor costs under control, business owners will put into effect a number of tactics to manage labor expense.  In some cases owners will simply reduce headcount, making due with one or two fewer employees.  In some cases automation that may not have previously made economic sense now does, so the business owner invests in machines to do the work (think ATMs, automated parking systems, self-check in, etc). 

Minimum Wage Increases Hurt the Poorest People – When minimum wages go up, and it is possible to increase prices, businesses will.  However, the businesses that employ the most workers at minimum wage are also the businesses that most poor people frequent.  As an example, poorer people eat at fast food restaurants far more frequently than rich people do.  So when the owners of fast food restaurants increase their prices, it is the poorest people who will suffer the most from those price increases.  The minimum wage may temporarily help some workers, but the cost will be born significantly by other low income earners.

Minimum Wage Increases Are Short Term Fixes – An increase in the minimum wage will help some workers, but the effect will be short term (that’s why we are always needing to increase minimum wage).  For those workers who do not lose their jobs, they will find that they will have more money to spend.  However, prices will increase on what they spend their money on, for two reasons.  First, businesses will increase prices because those businesses have to pay more for labor.  Second, the increased cash that some workers will spend, will increase demand.  The laws of economics stipulate than when demand goes up, so do prices.  The result – very quickly the increase in minimum wage has no benefit because the prices of basic goods and services the minimum wage earner needs all go up.

Minimum Wage Eliminates Job Opportunities for the Under Skilled – We are not all created equal.  Some of us are more intelligent, some of us are healthier and some of us have stronger bodies.  However, many people with less intelligence, weaker bodies and who are not healthy still want to be productive members of society.  Many of us have worked in a company where someone who was a “little slow” performed janitorial duties, kitchen duties and other tasks requiring a limited skill sets.  Those people were productive, proud to be productive, and welcomed members of the company’s employee family.  As minimum wages increase, more and more of those with the least abilities cannot find employment, which puts a greater burden on government to care for these people.
 
Minimum Wages Are Arbitrary – We are not all the same.  Each of us has different living conditions.  Some people are more frugal, others have more money, some of us live in areas of the country where the cost of living is less, some of us choose to go without cars and use bicycles or public transit, some of us have spouses, partners, parents or others who provide for our needs.   A minimum wage does not take into account the myriad of differences between one person and the next, but assumes that some magical number pulled out of a hat, will provide fairly for the economic well being of all.

Minimum Wages Ignore the Entry Level Argument – Since people began working, and getting paid a wage, the best way to increase one’s personal economic welfare has always been to improve one’s skills and education.  The jobs at the lowest level typically are filled by early entrants into the labor market, people who don’t need to earn more for personal reasons and people whose personal limitations will keep them in the most menial of jobs.  The early entrants into the labor market are expected to increase their education and their skill and “move up the ladder.”  Minimum wages reduce the incentive for people to improve and better themselves (this has been proven in the union environment where many workers refuse to be promoted to a supervisory role).  As a result, we have an ever increasing number of people who are making entry level jobs a lifetime career.  Minimum wages actually reduce our ability to develop a more productive and skilled workforce.

Minimum Wages Provide for Political Opportunism – Politicians love minimum wages for two reasons.  First, they use it as a vote getting mechanism.  After all, if you promise minimum wage earners a pay raise, many of them will vote for you.  It’s kind of like buying votes.  Second, increases in minimum wage increase the government’s take of the economic pie.  Remember that employees pay taxes, Medicare and social security off of their paychecks.  The more they get paid, the more the government gets.  Also, employers pay the government for increased payroll. Employers pay payroll taxes, unemployment taxes, and other fees based on gross payroll.  So increasing minimum wages gets the government more money to spend—and spend it they do.

There are probably more arguments against minimum wages but these ten are overwhelming given that there is no logical economic argument for minimum wages.  The only argument for minimum wage is that it “feels good.”  Making us feel good is not a sufficient enough reason for the government to introduce laws that limit our personal freedoms, that cause people to lose jobs and that interfere with the free flow of labor and capital in a free market economy.

Author:  Michael Manahan

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