Op-Ed: Relooking at Minimum Wage Laws

Who benefits from minimum wage laws? Who promotes it? Does it actually help for those intended? Is it strictly a political actually? Why do we have a federal minimum wage law?

In a recent article titled What Happened to Intellectual Conservatism? I stated, “There is no reason to feel bad by pondering questions: do minimum wage laws actually hurt the blacks more than any other anti-poverty law?” Now I decided to try to relook and discuss minimum wage laws. Peter Schiff, President of Euro Pacific Capital and author of Crash Proof: How to Profit From the Coming Economic Collapse, recently said in a blog of his about minimum wage laws, “In a free market, demand is always a function of price: the higher the price, the lower the demand. What may surprise most politicians is that these rules apply equally to both prices and wages. When employers evaluate their labor and capital needs, cost is a primary factor. When the cost of hiring low-skilled workers moves higher, jobs are lost. Despite this, minimum wage hikes, like the one set to take effect later this month, are always seen as an act of governmental benevolence. Nothing could be further from the truth.” First of all, I do like to admit that I am on the fence when it comes to the minimum wage. I do have certain beliefs on the issue but I am willing to listen to arguments on both sides. I first would like to ask the question: Why is there a federal minimum wage? Doesn’t the cost of living vary from state-to-state or province-to-province? Isn’t the economy vastly different in New York than it is in Alaska? Or aren’t the prices of units different in the Northwest Territories than in Ontario? Secondly, who do the minimum wage laws really benefit? I’ve come to the conclusion that every time the government wants to do something good, there is actually a hidden motive behind their acts of kindness. Remember, the government is thy savior and is the only living creature that can give me anything in this world! It even gives me air! (Sarcasm). Republicans and Democrats vote for minimum wage laws because it is politically savvy and it is not politically viable to discuss something as abolishing minimum wage laws. Every decade, there is supposedly strife between the two parties on a crucial issue. During the 1980s, the Democrats wanted to raise the minimum wage from $3.35 and the Reagan administration did and also called for a subminimum wage for teenagers who are marginal workers. In the end, Congress passed legislation to increase the federal minimum wage to $4.55. The subminimum wage was not passed, however. The Reagan administration was anything but from being all about free-markets and was more about Keynesianism but that topic is for another day. What happens, though, is that employers release their employees they hired in between the two rates because of the demand curve. Therefore, firing teenagers and blacks (the marginal workers), the very people the government says they can help. The AFL-CIO is the biggest advocate of minimum wage laws. “American’s Union Movement”, representing 90 percent of unions, has lobbied hard for constant minimum wage increases. But if minimum wage laws help people? Why stop at $8? $10? $12? Why not make it $100? $1000? It is a similar argument to the inflationists and Keynesians who believe inflating the money supply is a good thing. Why not inflate the money supply and give every single citizen $1,000,000? In a brilliant analysis by Matthew B. Kibbe, graduate student of economics and a fellow at the Center for the Study of Market Processes, George Mason University, he states, “An individual will not be hired at $5.05 an hour if an employer feels that he is unlikely to produce at least that much value for the firm. This is common business sense. Thus, individuals whom employers perceive to be incapable of producing value at the arbitrarily set minimum rate are not hired at all, and people who could have been employed at market wages are put on the street.” The U.S. Senate Committee on Labor and Human Resources of the General Accounting Office in 1983 released a report agreeing that minimum wage laws increase unemployment, “[We] found virtually total agreement that employment is lower than it would have been if no minimum wage existed. This is the case even in periods of substantial economic growth. . . . The severity of the employment loss varies among different age, gender, and racial groups in the population. Teenage workers, for instance, have greater job losses, relative to their share of the population or the employed work force, than adults.” So again, who actually really benefits from unemployment? Labor unions and their members of course. They are the ones who benefit from the minimum wage’s redistribution. Friedrich Hayek once wrote in his book Unions, Inflation and Profits, “Unions have not achieved their present magnitude and power by merely achieving the right of association. They have become what they are largely in consequence of the grant, by legislation and jurisdiction, of unique privileges which no other associations or individuals enjoy.” Whenever an increase in the minimum wage is debated on, AFL-CIO representatives, or other unions across the world, come to the Parliament or Congress and tell everyone how important it is to increase the minimum wage. How come we never see representatives of poor people? Minorities? Why? It’s to protect their unions from competition of lower and less-skilled workers. I am not an economist and do not claim to have all the answers but I do like to research these kinds of economic topics. Austrian Theory interests me far more than Keynesianism. Minimum wage laws, from the Austrian Theory point of view, can be much more eloquently discussed by Nobel Prize Winner Milton Friedman. I highly suggest such a fascinating individual.