Bloomberg BusinessWeek published an editorial this week calling for an increase in the minimum wage to keep pace with inflation. The editorial board’s position was largely influenced by petitions for “fairness,” and the idea that it is impossible to live a decent life even working full time at the minimum wage.
While it is commendable for well-off business beat journalists to advocate for policies they see as helping those less fortunate than themselves, increases in the minimum wage – and even minimum wage laws themselves – end up hurting the very worst off in society.
Young minority adults, some of the most vulnerable in society, are amongst those most harmed by an increased minimum wage. Having been given a subpar education by a failed public education system, these people must accept low-wage jobs where they are able to learn practical skills and prove their worth in a work environment. Low-wage workers are not being “exploited” as the Left so often cries out. As Milton Friedman pointed out in his classic video, they are attempting to make the best of the situation they are in and better themselves.
While some workers benefit from an increase in the minimum wage, it is not the most destitute. The most direct beneficiaries are those who were employed at the old minimum wage, yet whose marginal revenue productivity is higher than the new minimum wage. It still makes sense for his employer to hire him, as he still provides profit for the firm. Furthermore, those making more than the minimum wage are amongst the beneficiaries of such a hike. Having already established themselves as reliable workers with valuable skills, these higher paid workers are now sheltered from completion from young, unskilled workers who will never have the opportunity to gain the skills and experience they have.
An increase in minimum wage also hurts small businesses. By limiting the pool of potential employees to those whose productivity exceeds an arbitrary amount, the government restricts the way in which and rate at which small businesses may expand. Small businesses accounted for 65 percent of all new jobs between 1993 and 2009. I don’t know about you, but I feel like the American economy needs more jobs, not further restraints on entities which create jobs right now.
The desire to see the minimum wage increased is largely symbolic of a flaw in progressive thought. Progressives see something which would be beneficial for society, such as the poorest workers having more money, and demand that the government use force to institute such a policy. While I would like to see the poorest members of both our society and the world have more purchasing power, real wages do not increase through government decree. In a free market, people are paid the amount of value they add to a firm. If they are paid more than the value they add, then the firm fires them. If they are paid significantly less than the value they add, then the firm’s competitors will attempt to hire them away, driving their wage up to their value.
This is the marginal productivity theory of wages in a nutshell. You cannot force up real wages by government decree, but only by increasing the productivity of workers.
Minimum wage laws focus on the symptom, rather than the cause, of poor workers. Bad economic policy is never a good idea, but it is especially destructive during difficult economic times.
