Minimum Wage: Human Loss For Political Gain

Those advocating government force always have a study to point to, to help make their case. Supporters of a higher minimum wage are citing a new report by the Center for Economic and Policy Research (CEPR) as evidence that raising the minimum wage really doesn’t kill jobs.

13 states raised their minimum wages on January 1 of this year. Through the first five months of 2014, the average change in payrolls for those states was 0.99%. In the 37 states with unchanged minimum wages, the change in payrolls averaged 0.68%.

“New Analysis Debunks Claim That a Higher Minimum Wage Kills Job Growth,” sneers the Huffington Post headline.

USA Today was a bit more evenhanded:

CEPR acknowledges this analysis is far from scientific and draws no direct link between raising the minimum wage and payroll gains. Still, “it does provide evidence against theoretical negative employment effects of minimum wage increases,” CEPR researcher Ben Wolcott writes.

Whatever the theory, however, higher minimum wages cause real people to get fired.

Sacked by the Minimum Wage

College student Adam Folsom wrote in the Detroit News back in 2008 about being a victim of Michigan’s minimum-wage increase. Adam was making $6 an hour at Hope College’s Office of Career Services. His boss called him just before the scheduled increase to $6.95 would take effect and told him the budget was too tight to accommodate the higher wage.

“I would have liked to continue working at $6 per hour, and Hope College was willing to pay me that,” Folsom wrote. “But the state of Michigan says I do not have the right to work for that amount of money. Hope College and I are not allowed to negotiate a contract that is satisfactory to both of us.”

Liberty.me’s Jeffrey Tucker tells the heartbreaking story of working with a handicapped boy named Tad at a Texas department store, long before Jeffrey became the giant of Libertarian thought he is today. One day a new labor department sign was posted in the store’s break room, announcing an increase to the minimum wage.

Tad was very happy to read the sign. He thought he was getting a raise.

But a day after the increase went into effect, Tad wasn’t at work. When Tucker asked the store manager where his friend and coworker was, the manager turned solemn and put his hand on his young employee’s shoulder. He told Tucker how much he liked Tad and wanted to help him. They even attended the same church.

But the store’s margins were thin. He simply couldn’t afford to keep the mentally and physically handicapped Tad on the payroll at the higher minimum.

Tad never knew what hit him.

Tad and Jeffrey’s employer evidently didn’t know about the 14(c) provision in the Fair Labor Standards Act, which I mentioned a few weeks ago. The 14(c) carve-out undermines any intellectual argument supporting minimum wage by exempting anyone “whose earning or productive capacity is impaired by age, physical or mental deficiency, or injury, at wages which are lower than the minimum wage.”

A Law Not for Employment, but Disemployment

Why are proponents of higher minimum wages so stingy? They must know that the proposed $10.10/hour isn’t enough to fund an acceptable standard of living. If raising the minimum wage won’t cause unemployment as they claim, why don’t we jack it up to $20 an hour, or $50, or $100?

“It is obvious that the minimum-wage advocates do not pursue their own logic,” economist Murray Rothbard wrote, “because if they push it to such heights, virtually the entire labor force will be disemployed. In short, you can have as much unemployment as you want, simply by pushing the legal minimum wage high enough.”

Indeed. It isn’t a coincidence that minimum-wage agitators stop just short of calling for a minimum wage that would put members of important voting constituencies, like union labor, out of work.

Political Gain for Blocking Low-Cost Competition

Maybe minimum-wage champions aren’t dimwitted after all. Maybe they’re malevolent. Maybe they understand that a higher minimum wage prices marginal laborers out of work and into government dependence… while at the same time lowering competition for favored voting blocks.

Economist Walter Williams quotes white unionists during South Africa’s apartheid era, who argued, “in absence of statutory minimum wages, employers found it profitable to supplant highly trained (and usually highly paid) Europeans by less efficient but cheaper non-whites.”

Williams points out that minimum-wage increases reduce training opportunities: we gain skills through on-the-job training. Minimum-wage laws squelch these opportunities.

And while the left constantly screams about discrimination, the minimum wage aids racists because it lowers discrimination costs. Williams uses the example of two workers—one white and one black—applying for a job. If the minimum wage is $9 per hour and the employer prefers white workers, the cost to discriminate is zero. “But if it were legal for the black worker to offer a lower price, there’d be a cost to discrimination,” Williams writes.

Doing Harm All Around

The real question is: how many more jobs would have been created but weren’t in the 13 states that hiked their minimum wages? And how many jobs would be created in all states if the minimum wage was abolished?

As the great Henry Hazlitt put it:

You cannot make a man worth a given amount by making it illegal for anyone to offer him anything less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low wage you substitute unemployment. You do harm all around, with no comparable compensation.

It’s not possible to pay labor more than it produces. Hiking the minimum wage is a policy stunt in search of political favor. It benefits some while harming the most vulnerable in society… who often mistakenly think they will benefit.

Higher wages can only come from production, efficiency, and capital formation—not from government decree.