Economic Justice and The Minimum Wage Myth

Election cycles always serve a useful purpose in shining a light through the murky business of national politics, offering voters a more clear-cut view of where each party really stands on important issues, as politicians seek to rally their respective bases to get out the vote. In-between elections, both parties tend to gravitate toward the center in an attempt to appear more “mainstream” and to attract the ever-elusive “moderate” voter. However as elections appear at the horizon, both parties retreat to their respective bases and fill the airwaves with incantations of promises and threats certain to entice or frighten voters to the polls en masse. The Republicans, of course, are propping up national security and the war on terror as the central issue of the election, if not the modern era. What most Americans consider as important, albeit lower-tier issues such as the economy, high gas prices, the environment and employment are also getting their due attention. The left is well known for conjuring up hackneyed class-conflict rhetoric, the kind hyperbolic nonsense that would make Karl Marx proud. Black economist Walter Williams aptly labels such political panderers as “poverty pimps”. Whether or not any of the members of the far left have ever cracked the binding of the most remedial textbook or commentary on economics is suitable question worth pondering. Among the most recently employed tricks from the left’s worn-out playbook is hardly a new one, considering their modus operandi. The question of the minimum wage found itself in the spotlight recently as Democrats hoped to enact a gradual increase in the so-called “living wage” from the current $5.15 to $7.25. Although the legislative action foundered in the Senate, Democrats are hoping to use it as an election year lightening rod to jolt their base to the ballot box.

Ignoring the rules of economics and hurdling vituperative charges that those opposed to increasing the minimum wage are motivated by greed, acting in the interest of big business while coolly ignoring the plight of the lower class, the left is determined as ever to keep the issue alive for November. However a closer look at a relatively uncomplicated economic principle will illuminate the controversy surrounding the minimum wage debate and will prove that government meddling in the minimum wage actually does far more harm than good. The irony is that the harm that results affects most directly those whose cause the left is purporting to champion, younger workers and the lower class.

It can be taken as a given that the overwhelming majority of those currently earning a minimum wage are young people, mostly students working part-time while attending college. In fact, of the entire population earning a minimum wage, only 2.8% are over 30 years old. Such a group is classified in economic circles as “low-skilled” or “under-skilled” employees. These workers are at that formative stage in their lives where they are learning important work-related skills that will serve them in the future. It goes without saying that young people, given the paucity of their work experience, have much to learn from entry-level positions in terms of skills. These jobs often serve as an introduction to the world of business. Having worked in retail years ago as a young student, I can vouch for this claim. While hardly a glamorous job, over the course of several years I learned a number of skills that come in handy to this day. Employers at any given trade can hire a robust number of youngsters and the new employees can earn some money while they attend school and at the same time receive invaluable work-related skills for the future. Entry-level positions serve as a first-step to better opportunities down the road and to eventual salary increases based on merit rather than government dictum. We can once again look at the numbers and see that within a year’s time, the average income of the worker earning a minimum wage will actually jump 30% due to raises based on his increased value to the business. Let’s now take a look at the deleterious consequences of government intrusion in the wage rates.

It is not difficult to see that if a small business if compelled, via legislative fiat, to pay their entry-level positions a higher salary, the forced increase in wages will have detrimental repercussions down the road, since the labor costs to the employer will have increased dramatically. Employers will not be able to hire as many workers in the first place, since the cost to the employer will have gone up as a result of the higher wages he will be forced to pay, so less people will have jobs, period. This will inevitably lead to a sizable number of workers being dropped from the company’s payroll because they will have become a liability for the company. Some may like to paint the picture that average businesses are hording piles of money in a safe. Wouldn’t it be the compassionate thing to force them to crack open their safes and share the wealth with their "underpaid" employees? In reality, such a scenario is is just that, an cooked-up scenario. Forcing the average business to arbitrarily pay their employees more will result in a good number of employees losing their jobs. In addition, an increase in the minimum wage will result in higher prices, since the employer will look for ways to compensate for the additional labor costs siphoned off to pay his workers. The dirty little secret is that the minimum wage movement is a red herring, intended to conceal the true source of the motivation behind the government’s interference. The political backers of the wage increase are hoping that the spillover effects will result in a jump in union wages and union contracts, which will, in turn, result in voters turning out in their favor come November. This is simply a political ploy. The minimum wage is nothing more than an invasive, disguised tax on business. Once again, the taxpayers will face the brunt of the damage done since the base-line for union contracts is covered by the taxpayer. Someone needs to have the temerity to proclaim the obvious, that forcing an arbitrary minimum wage increase will result in job losses.

This is a brief overview of the inherent problems associated with government intrusion into the free-market. In fact, statistics prove that every time the government has meddled in the minimum wage, unemployment, among young blacks in particular, has actually increased. Economist Ronald Nash succinctly sums up the case against government intervention in wages. “Interventionism cannot be justified in the short run because if fails the moral test. And interventionism cannot be justified in the long run because it fails the economic test.” In other words, interventionism fails the moral test because those who may temporarily benefit from an increase in the minimum wage will do so at the expense of those who will lose their job because of the employer’s increased labor costs. It fails the economic test because it's simply bad policy for a business. It will result in both higher prices and a higher unemployment rate. The left’s objective in promising to increase the minimum wage for those they label as “disadvantaged” amounts to a rotten quid pro quo. Scraps are tossed out in return for votes and nobody but the politicians end up better off when all is said and done.