A Short Opposition to Minimum Wage

This summer, Seattle became the most expensive city for businesses to employ a workers, with a minimum wage of $15.00 an hour. The wage increase will occur over the next 3 – 7 years, and includes special provisions that exclude teenagers. In April, all workers will receive a $1.00 hourly pay increase.1

Some people saw this as a win for the working class; a strike from the proletariat to the bourgeoisie. But others saw it as a blow to free markets and yet another sign of our impending doom to the evils of socialism.

What is the minimum wage?

A minimum wage is an involuntary, unscientific minimum price on labor. The current federal minimum wage is $7.25/hour, which means an employee working 20 hours a week would make $145.00/week, $7,540/annually. This is just the minimum of the minimum wage. States and municipalities can choose to raise minimum wage within their respective areas of governance.

Even if an employee wanted to make him or herself more competitive by lowering their base price of employment, employers would still have to pay him or her the minimum wage.

Who makes the minimum wage?

Nobel Prize winner Milton Friedman noted, “A minimum wage law is, in reality, a law that makes it illegal for an employer to hire a person with limited skills.”2

If this statement rings true still today, Americans should definitely be worried. According to Pew Research, minimum wage workers are disproportionately young: 50.4% are ages 16 to 24; 24% are teenagers (ages 16 to 19), mostly (77%) white, and largely part-time workers (64% of the total).3

Food service, sales, and personal care make up the top three professional areas with minimum wage earners.

But still, individuals and groups fighting for a minimum wage increase, both nationwide and (in the case of Seattle) locally.

Popular Arguments, Countered

The most common argument statement of supporters of minimum wage use is that employers would otherwise pay their employees “slave wages” for their work. Proponents of this reasoning claim the government is protecting individuals, but this argument is easily countered using ethics, facts, and historical trends.

  1. Employment is voluntary

This is the frankest argument against minimum wage. Employment is voluntary. No person is holding another hostage, forcing them to work for low wages and, if they are, they are already violating the law. If an individual is disappointed by his or her wages, that individual has the freedom to leave the job and pursue a new one that provides higher compensation. In reality, the actual minimum wage is $0, and although it may be hard to come to grips with this fact, the natural human state is poverty, not prosperity. Employment is simply an option to get out of the natural state of poverty, and wages are based on agreements between employees, and the employers.

  1. Improvements in conditions and livability were first created by the free market

The minimum wage was instituted in 1938 by Franklin Delano Roosevelt, and originally only covered a few industries. Nearly 30 years before that, companies like Ford were already paying their workers way above a “livable wage.” Ford realized that there were enormous benefits to paying high wages, namely avoiding high turnover rates in the company’s work force, which ended up decreasing the price of labor overall for Ford.6

  1. Employers today have entry level wages that are higher than the minimum wage

Many companies continue to offer wages higher than the current minimum wage for entry level, no experience necessary, positions.

Some notable examples:

  • Gap $10/Hour
  • Ikea $10.76/Hour
  • Costco $11.50/Hour
  • Whole Foods $11.00/Hour
  • REI $10.94/Hour
  • Ben & Jerry’s $15.97/Hour
  • Trader Joe’s $13.29

Apply for these jobs here: http://www.monster.com/career-advice/article/8-companies-pay-above-minimum-wage

The other argument I hear most often, is that some people cannot live off of a minimum wage alone.

In the United States, a livable wage is considered $9.70/Hour for an individual living by him or herself (the poverty level would be $5.00/Hour).7

Those who examine the data on all hourly paid workers will find that minimum wage earners account for only 3.3% of the population. Out of all full time employees, only 2% were paid minimum wage, and out of all of the minimum wage workers, only 5% were married.

There is no credible evidence to suggest that an even sizable minority of minimum wage workers are supporting themselves (by themselves), or a family, with only a minimum wage.

Why are Libertarians opposed to minimum wage hikes across the nation?

  1. The minimum wage is coercion.

The central belief of Libertarians is universal non – aggression. Forcing an employer and employee to enter into a certain type of agreement, and barring others, would be a negation of property rights and individual liberties.

  1. Minimum wage likely doesn’t work, and can be correlated to unemployment.

According to the CATO institute,

“There are seven European Union (EU) countries with no minimum wage (Austria, Cyprus, Denmark, Finland, Germany, Italy, and Sweden). If we compare the levels of unemployment in these countries with EU countries that impose a minimum wage, the results are clear – a minimum wage leads to higher levels of unemployment. In the 21 countries with a minimum wage, the average country has an unemployment rate of 11.8%; whereas, the average unemployment rate in the seven nations without a minimum wage is about one third lower – at 7.9%.”4

The effect can be even worse on your adults:

“In the twenty-one E.U. countries where there are minimum wage laws, 27.7% of the youth demographic — more than one in four young adults — was unemployed in 2012. This is considerably higher than the youth unemployment rate in the seven E.U. countries without minimum wage laws — 19.5% in 2012 — a gap that has only widened since the Lehman Brothers collapse in 2008.”5

Those observations are not exclusive to nations within the Eurozone; in a survey of CFO’s, 40-57% said that they would reduce hiring if the minimum wage was increased.

The minimum wage is an ineffective way to combat poverty as a whole. Out of the nearly 30 million Americans at or below the poverty level, only 9.79 million had any type of job – part time or full time.8

The bottom line:

Those who love liberty possess a very cynical attitude when it comes to government interference in the market place, but this cynicism does come with a set of solutions to fix the problems of poverty.

Freidman suggested a Negative Income tax, which is a progressive tax that would essentially ensure that all Americans that filed a tax return receive a livable wage. This is an embattled idea among Libertarians, who mostly see it as an improvement over the current welfare state, but a less than ideal end goal.10

In general libertarians also oppose the things that keep people in poverty: Institutional racism, barriers to entry in the marketplace, corruption, regulation, taxes, and high rates of incarceration, to name a few.

There are also some perfectly reasonable ways to achieve a higher wage through voluntary means:

  1. Voluntary creation of unions and collective bargaining
  2. Strikes, walk outs, and other forms of protest directed at the employer itself
  3. Produce more product

Overall, the minimum wage, if anything, hurts people trying to get ahead. Our cities and states as a whole would be wise to avoid further barriers to employment, while instead letting the free market thrive, and bring people out of poverty.11

 

1 http://www.usatoday.com/story/money/business/2014/06/02/seattle-minimum-wage-vote/9863061/

2 http://www.cato.org/publications/commentary/let-data-speak-truth-behind-minimum-wage-laws

3 http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-minimum-wage/

4 http://www.cato.org/blog/minimum-wage-laws-kill-jobs

5 http://www.cato.org/publications/commentary/let-data-speak-truth-behind-minimum-wage-laws

6 http://www.forbes.com/sites/timworstall/2012/03/04/the-story-of-henry-fords-5-a-day-wages-its-not-what-you-think/#4179c7ed1c96

7 http://livingwage.mit.edu/

8 http://www.census.gov/data/tables/time-series/demo/income-poverty/historical-poverty-people.html

9 http://fairtax.org/

10 https://www.youtube.com/watch?v=xtpgkX588nM

11 https://fee.org/articles/capitalism-is-good-for-the-poor/