Debunking Statist Arguments: The Minimum Wage

Benjamin Levine
Nov 3, 2011 at 5:16 PM

The people of the "Occupy" movements certainly have their hearts in the right place.  However, many of their brains are somewhere way off this planet.  Though they tend to diagnose problems of corporatism well, their demands are often ultra-statist, unfortunately aligning quite often with what the Washington establishment wants.  Indeed, in some cases, implementing the OWS demands would be disastrous.  I'll be attempting to debunk these argument one at a time in a series of blog posts.

Argument: We need a living wage!  Debunking liberal arguments, one at a timeRaise the miminum wage to $20 per hour!

Answer: Raising the minimum wage would actually hurt the people that need help the most.  What most people don't understand is that the wage somebody earns is not meant to be an arbitrary number set by government.  Rather, it is supposed to represent the price of your skill.  The price of your skill, then, is valued by supply and demand.  Think of the argument people make about professional athletes -- it offers such a great example.  Football, basketball, and baseball players make too much money, they say, and should receive much less.  But is this necessarily true?

Economically speaking, it actually makes sense that they earn a high wage.  There is a small supply of professional athletes but a huge demand for them to play.  Therefore, their skill is priced very high.  Similarly, we can look at a janitor's skill and see clearly why he wouldn't make as much money.  Cleaning a floor, bathroom, and doing other janitorial responsibilities is not that difficult (this is not meant to belittle janitors, but merely explain why their wages are so low).  There is, then, a high supply of people that could be janitors; in fact, the supply is far greater than the demand because basically everyone can do the job.  So, what follows?  They have a wage that is priced low.

Anyways, this should help us understand why the minimum wage is such a poor policy and that increasing it would be even more devastating.  What the minimum wage essentially does is force employers to overprice unskilled labor and therefore have less money to hire another worker.  Although it might not automatically result in higher unemployment if we raise the minimum wage because businesses could deflect this strain somewhere else, it is often still case that with an increase in the minimum wage so comes an increase in unemployment.  D.W. MacKenzie, assistant professor at Ohio Northern University, explains it best:

The economic case against minimum wage laws is simple. Employers pay a wage no higher than the value of an additional hour's work. Raising minimum wages forces employers to dismiss low productivity workers.

And, to compound the problem, those that suffer the most from this are the poor, minorities, and youth.  It should be noted, then, that the minimum wage policy actually hurts the people that need help the most.  Yet there is the argument that liberals make which claims that if the minimum wage was eliminated then businesses could all team up and set wages low!  But this presupposes a few things.  First, the argument assumes that people cannot choose where to work (contingent on their ability to get hired).  It is not as if somebody is forced to work somewhere, although you would assume so when someone says corporations "exploit" people.  Employers have control over employees only in the sense that they set the skills an employee needs to have to be hired but that is it.

The second problem with this argument is that it does not consider competition between businesses.  In order for a company to thrive, it would need talented workers and to employ talented workers a company would need to pay them appropriately.  Consider the situation in America today: The average wage in 2010, according to the Social Security Administration, was $20/hour (assuming a 40 hour work week).  But if businesses didn't have to pay this much -- if they only had to pay the federal minimum wage of $7.25/hour -- then why did they pay more?  Precisely because of competition and the price of an employee's skill.

It should be faily obvious that eliminating the minimum wage , not increasing it, would actually be the correct policy.  The only people who would be affected by this would be those working at the minimum wage, the rest would not see a shift in their wages because their skills are appropriately set.

The minimum wage argument has been officially debunked.

Not to mention an individual's right to contract, as once constitutionalized by Lochner v. New York (though I tend to agree with Holmes' dissent, but for reasons of separation of powers rather than individual liberty).

BrianMUGA's picture

I can not believe you actually had the nerve to state what you stated - It is utter nonsense - So an athlete is worth billions????  Let's get it into prospective - So, you are actually saying that, and I am using this as an example, associates that work at walmart and are paid $8.10 per hour are useless and the lowest form on earth.  I'm sorry but that is what I am reading into your column.  I didn't even finish reading your substandard article.  You are arrogant and your common sense theory is not worth the paper it is written on - keep your opinions to yourself, because no one else is interested

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I have a simple solution for you if you really feel they don't deserve it..  Just become a professional athlete, and work for half a billion dollars.

You would surely get hired if you could do just as good of a job.  Why don't they hire you instead?

He's not saying what they're worth as people, he is saying what their work is worth.  There is a huge difference.  Human beings aren't inherently worth any value, according to our society based on the idea of liberty and self ownership.

megastealer's picture

You were obviously not paying attention, so I'll clarify a few things for you. Employers pay workers based on the value of their work, not their value as a human being. An athlete is payed more because there are relatively few athletes and employes must compete for their work. A Wal-Mart register worker is payed  less because the job is easy and anyone can do it. The writer said nothing about their usefulness. Maybe you should read the entire article before shoving words into his mouth.

You clearly despise common sense, so perhaps your hypocrisy shouldn't surprise me - But when you said that no one wanted to hear his opinion, did you ever stop to think that your own opinion may not be welcome? I like to hear different opinions, even when they oppose my own,  but telling someone that they should keep their opinions to themselves is pugnacious and repugnant.

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Wages have nothing to do with personal worth, self esteem, judgement of potential capability, or anything like that. A wage is simply the price of a particular task. It's the price the employer must pay the worker in order to "buy" the work. These prices are subject to the same economic rules as any other price (in the absence of price controls, which is what minimum wage laws are).

Simply put: given the same demand, when the availability goes up, the price goes down.

Hypothetically, say there are 100,000 janitors, and 50,000 people want to hire someone for janitorial service. Large supply, and supply exceeds demand, therefore the wage (price of janitoral work) is low. Now say there are 1,000 professional athletes, and 50,000,000 people want to see them play. Small supply, and demand greatly exceeds supply, therefore the wage (price of professional athletic performane) is very high.

It is as simple as that. Wages are the price of work, nothing more, nothing less.

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An employer can only hire someone if it is profitable to do so. I.e., someone can only be hired for $15 an hour if their work is worth at least $15 of income to the company.  When an arbitrary wage is set, it effectively puts everyone with skills worth less than minimum wage out of work.  An employer can not higher someone at minimum wage if the worker is only capable of producing $5/hr of product/service.  It is much better for the uneducated/underskilled to work for $4/hr and gain skills on the job than to not have any source of income at all.

I think the minimum wage law is one of the most racist laws on the books.

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Before our country had long term corporations, we had true competition.  It was much easier to have one's own business.  

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I agree, however you have to consider that long-term corporations are NOT the product of a truly free market. To become a corporation a business has to do several things, including apply to the government. When they do so, if they are allowed by the government to incorporate, they gain several special privellages that non-corporate business, i.e. your local mom and pop shops do not have. 1. The ability to sell stock in the company, and borrow money in the form of bonds. This makes it a lot easier for corporations to raise money. 2. Legal personhood. This basically makes the corporation itself an actual "person" in the eyes of the law. and 3. Limited liability. This allows people to only be liable for however much they have invested in a corporation. For example if a tobacco company is found to be aiming advertisements toward those who are not legally old enough to smoke, and they get sued, you have to sue the company itself....thus the executives in the company can get off nearly scot-free personally whereas that is not so if a small mom and pop shop were found doing something  similar.

None of these, would exist in a truly free market, a stateless society, for the simple fact that there would be no gov't to interfere in the economy in numerous ways, including creating corporations. All businesses would be small, and mostly local businesses....the largest you might see would be actual brick-and-mortar stores over a would NOT see an entire global empire like you have with Microsoft. 

My point is that it's not just the corporations to blame, it's also the government.

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