The Minimum Wage
Recently,
fast food workers have been on strike for a higher minimum wage of fifteen
dollars an hour. Those who support their cause contend that a higher minimum
will increase the standard of living for the poor, and claim that fifteen
dollars an hour is a “living wage”. However well-intended these zealots are,
they fail to realize that a higher minimum wage is a bad way to help the very
people it is intended to help.
What
does a living wage actually entail? Is it the current $7.25 an hour (national)?
Perhaps the proposed fifteen dollars an hour? Why not an even higher wage. Why
not twenty, thirty, even forty dollars an hour? There is no limit to how high
the minimum wage can go if the contention that it should be a “living wage” is held.
When most people think of the poor, they think of people living below the
poverty line. But how can a government-set line determine poverty? Most
Americans living below the poverty line have a washer and/or a dryer, as well
as a computer. More than 80 percent have air conditioning. More than 80 percent
also have both a landline and a cell phone. Nearly all have television and a refrigerator.
Most Americans living below the official poverty line also own a motor vehicle
and have more living space than the average European -- not Europeans in
poverty, the average European.
In addition to
the blurred “poverty” line, history has proven that the lower the minimum wage
is, the lower the unemployment rate is. Switzerland, one of the few modern
nations without a minimum wage law, had an unemployment rate of 2.91 percent in
2012. When Hong Kong was a British colony, it had no minimum wage law. In 1991
its unemployment rate was under 2 percent. Most Americans today have never seen
unemployment rates that low.
There are
skeptics who say that even if more people are employed, they are still making a
low wage. However, they aren't taking into account that people can increase
their income by climbing through the ranks of a business. Statistics show that most
working people in the bottom 20 percent in income at a given time do not stay
there over time. More of them end up in the top 20 percent than remain behind
in the bottom 20 percent.
Minimum wage
laws have good intentions, but they end up hurting the poor and the economy as
a whole. Following the basic economics concept of the law of demand, as the
price of labor goes up, less of it will be demanded, i.e. unemployment. A
person earning a minimum wage may have a low income, but it is better than
being unemployed with no income.
Thanks Brandon. I would say that this is your strongest post of the year. It is well written, substantive, and (almost) convincing. I would be one of the non-economist types that supports a higher minimum wage for no better reason than I want everyone to have more money. But this is not sound logic. I really appreciate this explanation. I struggle with completely grasping how the economy works, but if I were to try to propose a counter-argument, I would ask the following questions:
ReplyDeleteFirst, you cite these people earning the minimum wage who have all of the basic necessities of life. While I respect the information, I would need more before I am convinced by that argument. To what extent are these people in debt, because they are spending money they don't have. Do they really own these possessions or do the banks and credit card companies own them? That is important to know. How do you define ownership? Also, if they are lucky enough to cobble together 40 hours a week making the minimum wage, I can assure you that their standard of living is quite low - unless there is another source of income. Does your analysis take into account who else in a household might be bringing in money that allows minimum wage workers to purchase a refrigerator? This does matter, because you can't make a decision about the minimum wage if you are considering the luxuries people enjoy in households with multiple incomes.
The relationship between the minimum wage and unemployment is also interesting. I had never considered that relationship before. How does this relate to the wage of the lucky-to-be-employed workers working in the iPhone factories in China? I feel like the logic that underlies your argument in this paragraph essentially contends that people need to eat, so therefore they will work for pennies and therefore, they will be working, and they won't contribute to unemployment. I would argue that the unemployment number is just as artificial as the "poverty line." I suspect that many of these lucky-to-be-employed individuals are working for a meager existence.
Anyway, I fully respect your presentation of the fiscally conservative position regarding the minimum wage. I confess that the older I get the more this position intrigues me. I am always seeking a thorough, conservative explanation of how economies work. Unfortunately, I always find them, in the end, to be very Darwinistic. Your post is great, in that it makes me think of things I have never before considered. For that I am grateful. Unfortunately, the more I think about this issue, the more questions I have for you. Regretfully, your post doesn't answer them. I wonder if this is the result of the space requirement, or the fact that fiscal conservatives don't have answers to them, or because they are afraid to share the answers. Stop by and talk to me; I'd love to learn more about this. I hate that I support the fiscally liberal position without having any real reason. I need to learn more.