This may sound crazy, but I want the minimum wage gone.
The minimum wage has been a hot topic due to the proposed, but failed, amendment to the recent “COVID relief” bill that would raise it to $15. The original minimum wage has a bit of a troubled past. It was first passed in the 1930’s by President Franklin Delano Roosevelt through a strongarm of the Supreme Court. The Supreme Court originally found it unconstitutional for the federal government to fix the wages of consenting adults. This was not going to stop everyone’s favorite authoritarian, FDR, so he slammed the court as “nine old men” and threatened to pack the court with 6 additional justices of his choosing. Suddenly, the court came to their senses and realized their legal theory was completely wrong and allowed the minimum wage to go through1. There have been many increases since its inception, but this article will argue that it should be abolished in favor of a laissez fairre system where market forces establish fair wages for fair work. The minimum wage and subsequent increases cause the most vulnerable to lose their jobs, have their hours cut, and be unable to establish careers. Finally, it is outside the purview of government for them to regulate this type of association.
The American minimum wage was first introduced a way to establish a living wage for working people across the country. According to the Cornell Law School, “The purpose of the minimum wage was to stabilize the post-depression economy and protect the workers in the labor force.”2 The first minimum wage was 25 cents per hour. When adjusted for inflation this comes out to $4.20 per hour, a significantly lower amount than what is advocated for today. If someone works 40 hours per week, 50 weeks per year (a typical work schedule), they will end the year with $8,400 before taxes. That is significantly less than the federal poverty guideline of $12,760 for a single person. FDR thought that it was the duty of companies to provide a living wage to every American and felt the first requirement was a good start but did not go far enough. His thinking on the topic is made clear in a statement on the National Industrial Recovery Act: “It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country”3.
The idea of a minimum wage and a so-called “living wage” are often conflated. The minimum wage is a legal standard for the minimum a company must pay. A living wage is a political term meant to invoke an emotional response as it has no agreed upon definition. The idea that the minimum wage is a minimum living standard that many people are living on is not true. This is because very few Americans actually work for this much money, and even fewer are supporting a family or themselves on it. According to the US Bureau of Labor Statistics, in 2016 US hit a record low for percentage of workers making at or below the federal minimum wage at 2.7% or 2.2 million workers. This number can be reduced when it is taken into account that over 45% of these workers are 16-24 years old4. This statistic also does not account for how many of these workers are part-time workers and/or supplementary incomes for their households. The reason so few workers actually work for minimum wage is that market forces have pushed typical low skill wages past the point of the minimum.
A study done in Ontario found that 80% of low wage workers were not members of poor households and on the other hand, 75% of poor households did not have a low wage worker in it. It is true that this may not be the exact same in the US, but the numbers are likely comparable5. This refutes the emotional argument that people are largely trying to support a family on the minimum wage.
Many of the most vulnerable Americans would be hurt by another minimum wage increase including low-skill workers and teenagers.
Low skill workers are difficult to employ as it is. They can only do certain jobs and require training in most fields. Many employers will hire them, though, because they do not demand high wages and/or expensive benefits, making them a net positive hire. As the minimum wage rises, more and more of these workers will find that employers do not think they are worth $15 dollars per hour or even $7.25 or may find that machines just became the most cost-effective way to run a business due to the stroke of a presidential pen thousands of miles away. It also makes it far more difficult for low skill workers to develop their skills. To become high skilled, it often requires an internship, apprenticeship, or prior job experience. The lowest income people cannot tolerate, financially, not getting paid at an internship or paying to go to college/trade school. If one has no skills, they will not be hired for a raised minimum wage job, thus giving them no way to climb the economic ladder. This just widens the gap between the rich and the poor.
Teenagers often suffer the same problems and can be classified as low skill workers, but it is actually worse for them. Not only do they lack skills and job experience, but they also lack life experience and fully developed brains, making them an even worse investment for employers. A study done in the UK found that minimum wage increases were overall bad for low skill and low wage workers. It found that there was an increased likelihood for these people that their jobs will become automated and that they will be jobless6.
All this evidence is not merely theoretical either. There is evidence because there are countries today that do not have a minimum wage. They are mostly northern European countries such as Sweden, Denmark, Norway, and Switzerland. What has happened there would likely happen in the US and is welcomed by most of the economic right/minimum wage abolitionists. With no federal standard, almost all working citizens are members of private labor unions. These unions create collective bargaining agreements with industries setting a standard for that industry. Two out of three workers in Denmark, Sweden, and Finland are members of union although they often are not mandatory7. This culture allows for market forces combined with collective bargaining organizations to set individual standards that are more accurate than an overarching federal standard. That has allowed these four countries to remain near the top of average hourly wages in the EU with Denmark and Norway actually having the highest of all EU nations.
While not necessarily an argument, looking to the opinions of US economists can be helpful. According to an Employment Policies Institute poll, 74 percent oppose raising the federal minimum wage to $15 an hour; 83 percent believe a $15 minimum wage will have negative effects on youth employment; Just six percent believe a $15 minimum wage is a very efficient means to target individuals in poverty; 67% of economists think that a $15 minimum wage would make it harder for small businesses to stay open8.
Finally, this is not a legitimate power of the federal government. Mandating a minimum wage is the government stepping into the business of two consenting adults, the employer and the employee, where it should allow the free market to determine the worth of work. John Locke, an 18th century philosopher and physician known as the “father of liberalism” wrote “the end of law is not to abolish or restrain, but to preserve and enlarge freedom”9. Minimum wage laws do nothing if not restrain the freedom of both employers and employees. If a 16-year-old is willing to work a job that could teach them valuable skills to progress their vocational aspirations for $5, they should have the right to do so without the threat of government weighing down on them.
Great article and explanation on how raising minimum wage actually hurts lower income/Unskilled workers. Hopefully the left will understand.
Well said Mr.Matthew Minkin