Politicians don’t like hearing it, but no businesses should be clobbered with a minimum wage requirement — including businesses in these United States. A minimum wage is a price control, and to the extent that price controls have an impact, they distort and hamper markets, and make life harder for the very people they’re supposed to help.
Suppose an economy is so rich that even the most unskilled and entry-level employees will make at least five dollars an hour. If an employer doesn’t pay at least five bucks an hour, there’s a good chance his workers will be bid away by other employers. No minimum wage law required.
In that case, the impact of a minimum wage law is nothing, or next to nothing. On the other hand, we can easily imagine circumstances in which an employer might be willing to give a guy a chance if he could pay him four dollars an hour, but not be willing if he had to pay five dollars an hour. This is easy to imagine because, for many low-skilled workers, this is their reality.
A first step into the job world can be an enormous benefit to the employee, even if the pay is low. That’s why students accept internships that pay little or nothing. It’s about getting a foot in the door. In fact, most people who earn minimum wage are young people. Or live in a household with other income earners.
What happens when minimum wage laws do generally increase the cost of unskilled or entry-level labor in an economy, as they will in the Northern Mariana Islands and to a lesser extent in the wealthier United States?
Then, employees on the margin are forced out of work. Or don’t get their foot in the door in the first place. No company has unlimited resources, and when a firm’s labor costs substantially increase, it just might have to cut down on its use of labor. When an economy can afford to pay all entry-level workers a certain minimum wage, that is the level to which the wage will rise naturally. Interfere with that economic process, and you just throw people out of work.
A minimum wage law with no impact is pointless. A minimum wage law that does have an impact is destructive.
Voters impatient with the federal government have used the initiative process to boost the minimum wage in several states. Popular isn’t always right. Voters have secured for their labors — by force of law — a payment for services rendered that cannot be obtained by voluntary agreement. These actions harm the interests of employees and employers both, and violate the rights of both parties to freely enter into an employment contract.
One might notice something amiss in the slogan for many of these minimum wage initiatives: Give yourself a raise. Voters should no more give themselves a raise with someone else’s money than congressmen should give themselves a raise with our money.
It may annoy us that bad guys like Jack Abramoff, even as they giddily indulge in their unfettered corruption, sometimes advance propositions such as 2+2 = 4; or that even certain Democrats protecting the business interests of those whom they represent might agree.
But two plus two still does equal four.
And minimum wage laws kill jobs.