| | Great article Wesley! I was just about to submit a similar one myself, but you beat me to it -- stole my thunder, as it were! :-) That's okay. Yours is more succinct and to the point and has a somewhat different emphasis and focus, which I enjoyed. Rather than post another article on the same topic, I'll add mine to the comments section, even though there's definitely some overlap:
The minimum-wage law has long been favored by both political parties. Virtually no one in the media nor anyone in the political arena considers it a bad law. Yet a curious paradox surrounds its almost universal acceptance, and that is the tacit assumption that we must somehow not raise it “too” high – that there is a maximum minimum-wage law, which no one bothers to identify. California's minimum wage was recently raised to $8.00 an hour, up from $6.75, and some cities in California have exceeded even that, notably San Francisco at $8.82 an hour. Right now, only 6 states in the union have no minimum-wage laws, but they're still subject to the federal minimum, whereas 18 have minimum-wage laws that exceed the federal standard.
A minimum wage is what economists call a “price floor," because it places a floor under the price of labor, preventing it from falling below that level. Farm price supports are another example of a price floor. To the extent they are effective, all price floors create a surplus of the good or service being bought and sold, because they prevent the price from falling low enough to clear the market. Since it's in the interest of the producer to sell his product or service, he will typically drop the price if the supply exceeds the demand. And as the price declines, people will be willing and able to buy more of it.
In the case of labor, the sellers are, of course, the workers; and the buyers, the employers. In an effort to sell their labor services, workers tend to underbid their competitors if they can't find a buyer. However, if a law is passed making it illegal for them to engage in price competition with other workers, then not only will they be less able to find a buyer for their labor services, but average wages will be higher, which means that employers won't be able to hire as many workers. Thus, there will be a surplus of labor, another word for which is "unemployment." The higher is the minimum wage relative to the market clearing price of labor, the greater is the level of unemployment.
Suppose, for example, that a minimum-wage law were passed making it illegal for anyone to work as a secretary for less than $30.00 an hour. Those businesses that couldn't afford to hire secretaries at that wage would be forced to lay them off and/or not hire any new ones. There would, of course, be some highly skilled and experienced secretaries who were worth $30.00 an hour or more. So, they would continue to be employed and to find new employment. But any secretary who wasn't worth $30.00 an hour, because he or she was just starting out and didn't have as much experience or expertise, wouldn't be able to find a job doing that kind of work, which would prevent the new and inexperienced worker from ever acquiring the job skills necessary to command a wage of $30.00 an hour.
Such a law would discriminate against the least skilled, least experienced workers by making it impossible for them to compete against those who were already well established in that field and had acquired the necessary skill and experience to command that high a wage. A law that made it illegal to work as a secretary for less than $30 an hour would discriminate against the very people it was intended to help, namely those who otherwise would not be offered $30.00 an hour because they didn't yet have the requisite qualifications and were not, therefore, worth hiring at the mandatory minimum.
The minimum-wage law is a perfect vehicle for limiting labor competition, which is why such a law is so heavily favored by labor unions. In South Africa under apartheid, a minimum-wage law was endorsed by white unions, because it prevented competition from black workers who were willing to work for lower wages. A minimum-wage law passed in 1933 under the National Industrial Recovery Act was estimated to have thrown 500,000 African Americans out of work. (See Only One Place of Redress: African Americans, Labor Regulations & The Courts from Reconstruction to the New Deal by David E. Bernstein, 2001)
Since the ostensible purpose of a minimum-wage law is to raise the wages of the least skilled workers in society, the law is a study in irony, since it has the effect, not of raising their wages, but of lowering them all the way to zero by pricing these workers out of the labor market. The minimum-wage law is a dramatic illustration of the law of unintended consequences. Rather than giving the least skilled workers in our society a better paying job, it deprives them of a job altogether.
The minimum-wage law also violates the rights of the least skilled workers to bargain with their prospective employers and to negotiate a contract by mutual consent to mutual advantage. In other words, the law sabotages freedom of competition in the labor market and in the product market, by preventing competing workers from lowering their demand for wages, and competing firms from lowering their costs of production and therefore the prices of their products.
Any worker who is willing to perform the same service as a competing worker, but for a lower price is morally entitled to the job, if the employer is willing to hire him. Yet, if the lower priced offer is below the minimum-wage, the employer is forced to hire the more expensive candidate, thus denying to the competing candidate the right to earn the job by offering the employer a greater value in return for the service. This moral transgression and callous assault on the rights of competing workers is completely overlooked in discussions of the minimum-wage law. It is time that opponents of the minimum-wage reclaim the moral high ground. A minimum-wage law is not only uneconomic; it is also immoral, because it violates a worker's bargaining rights and denies employment to the most deserving candidates.
- Bill
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