The High Cost Of A Minimum Wage Future

Every day, workers compete in an ever growing labor pool for the same limited number of jobs, jobs they need to be able to survive in a time when the standard of living is going up. The competition only gets more intense when jobs can be exported to other countries or be outright replaced by automation that swaps cashiers with kiosks. In such an economic climate, people need more bargaining power to give themselves an edge up against the competition and sell themselves based on their individual needs and qualifications. While minimum wage policies sound appealing at first, minimum wage hurts people at all stages of their career and ultimately helps the wealthy and large corporations, which is why politicians push for it.

All employment is a deal for an employer to pay an employee an amount of money for a given job, and an employer must decide if the employee’s asking price is within their budget. As with their rent, supplies, and dozens of other costs that add up, a business’s payroll is determined by how much they bring in when they sell a product or service to their customers. If they charge too much, a business can easily drive customers away to another that sells the same good or service for less. This means that every business must be careful about how much it spends.

When a business is legally forced to pay a certain amount to an employee, let’s say $10 an hour, they must be more selective with their hiring and so have an incentive to choose only the best candidate available, with the applicant’s resume filtering most candidates out. Henry Hazlitt succinctly identified a problem with this in Economics in One Lesson: The Shortest & Surest Way to Understand Basic Economics by saying “you cannot make a man worth a given amount by making it illegal for anyone to offer him anything less.”

Employers decide on hiring an employee based on several factors, including work experience, educational level, and criminal record. And yet, even people with all these against them are more employable in a market without a minimum wage than with one. If someone is able to freely set the price of their labor, maybe $5 an hour, the employer would have a financial incentive to take a risk when they wouldn’t normally, and could even hire two such workers instead of one asking for $10. Legendary economist Thomas Sowell points out in Basic Economics, “labor is not exempt from the basic economic principle that artificially high prices cause surplus.” Now that these two new employees have jobs, lowering the labor surplus that Sowell is referring to, they can use their work experience to either progress within the company or find new employment altogether. In many ways, a job is better than no job.

Strangely, minimum wage laws let prejudiced hiring managers avoid selecting from groups they do not like. Sowell notes how they have been used for this very reason historically: “minimum wage laws were once advocated explicitly because of the likelihood that such laws would reduce or eliminate the competition of particular minorities, whether they were Japanese in Canada during the 1920s or blacks in the United States and South Africa during the same era.” If someone from a given demographic can lower their asking price below others’, it forces even prejudiced employers to weigh what’s more important to them, their bigotry or their money. As a consequence, the biased employer that chooses money over prejudice would be exposed to people they would otherwise have avoided, and may possibly have their opinions changed.

So far, we have been looking at people currently seeking a job, but minimum wage laws hurt those with one too. Because a company doesn’t have more money just because they are forced to pay their employees more, those already employed can very easily find themselves doing more work to make up for the fact they don’t have many coworkers. If a $10 an hour employee is now doing the same amount of work that could have been done by two five dollar an hour employees, they are cramming two hours’ worth of work into one. This can result in increased wear and tear on their bodies or increased stress levels, which can lead to injuries or other medical conditions. Also, minimum wage increases don’t mean employees that have been promoted naturally to the new rate will be given a pay bump relative to what they were making before. So, veteran skilled workers could find themselves making the same as the unskilled new hire, even on that rookie’s first day. Moreover, everyone will inevitably be hit by a nasty side effect of artificially increasing the cost of labor: inflation.

Economic inflation takes several forms, but minimum wage laws create it in its own ways. As these laws apply to every business, the public can expect to see price increases on everything from groceries to gasoline, plane flights to doctor visits. Even if each only went up by a few cents, costs would increase cumulatively, and many people would find themselves struggling to afford the cost of living once more. Hazlitt points out that consumers, looking to make their money go further, can turn to other options when a business’s price increases “drive consumers to the equivalent imported products or to some substitute.” Of course, if a company is no longer selling their goods at any price, they will go out of business and all those employees are out of a job.

So far, we have been talking about people in the job market, but how about those finally able to get out of it? After retirement, many find themselves on a fixed income, living off their bank accounts, retirement funds, and/or pensions. As the price of everything goes up, these people will find that they can buy less and less with their money and those accounts will shrink faster and faster. As most retirees are elderly, and many with medical issues, they aren’t as able to return to work as easily and would be competing with younger, healthier applicants even if they were.

Minimum wage’s proponents believe strongly in them, and it’s understandable to see why. It feels good to address such a complex problem with an easy, straight forward solution. The way that it relieves people of their financial burdens is immediately observable when they have more money in their pockets. It’s also convenient that the policy’s negative consequences take years to become apparent, and by the time they are felt again the reasons why they happened have been forgotten, if they were ever identified in the first place. Unfortunately, all the minimum wage solution successfully does is kick the problem down the road for another day.

There is one last shocking revelation about minimum wage. If the minimum wage is a factor for whether a person is at the poverty level, then raising minimum wage also raises the poverty line, artificially creating more poor people. Here’s a thought experiment: assume you have 20 people, each making a different whole dollar hourly wage so one person makes one dollar an hour, one person makes two dollars an hour, and this continues to the one person making $20 an hour. If minimum wage is $10, then it could be argues that 10 of these people are poor. If we increase minimum wage to $15 an hour, we now have 15 poor people, adding five that weren’t poor before. Ironically, now that there are more poor people, you have a larger pool to use as justification to increase the minimum wage again, telling those in power that more people need to be saved from the poverty their very policies created in the first place. This self-perpetuating cycle systematically erodes the income levels away starting at the lowest and could theoretically consume them all with the ultra-wealthy the last to feel it. And that’s the goal.

Throughout this discussion, we have only given passing mention to how minimum wage negatively affects businesses, but it is deserving of a more focused examination, especially for how dramatically it can reshape our economy and world. While it’s easy to think that all businesses are Amazon, Wal-Mart, or any of the big national and international names, the economy is primarily sustained by small businesses like corner markets, restaurants, tailors, small gyms, and hundreds of others. And yet, these are the very businesses that can’t react to changing minimum wage*. Big corporations have a host of benefits that the little guys don’t, including the buying power to get bulk discounts on goods that increase their profit margin, diverse product catalog that allows them to make up for selling one item below margin while selling another above, to say nothing of the focused political power that comes from employing large numbers of employees or being able to make giant donations directly to politicians.

In fact, as a corporation expands to the point where it has its own stores, can produce its own private label goods, own its own distribution networks, and can even purchase its own media organizations which can act as PR for all their companies (as Amazon and owner Jeff Bezos does, down to owning the Washington Post) it eventually has an incentive to actively push for laws that eliminate the competition, a competition now valued at almost nothing and can be easily bought to make the corporation even larger. These companies want every person to be their customer, and if those same people also have no other option but to be the corp’s employees, it creates a loop where every salary comes right back to the corporation because the employees have to get food, clothes, and supplies somewhere.

What is worse is that as small businesses disappear, and as people no longer have an income, these massive corporations become the only tax stream for the government – become its sole customer – so no longer needs to work in the best interests of the general public. Why would politicians help the people when they no longer pay their salaries? And when there is nothing left that they don’t own, these corporations will just buy the government outright (and probably at a bulk discount). Those pushing for minimum wage do so at their and their communities own detriment. They are advocating for their and their loved one’s destruction.

The truth is, minimum wage laws look at the problem the wrong way, and there is a better solution to making the cost of living more affordable: make it go down. We have become used to an expensive world, but it’s possible to make, ship, service, and sell products cheaper, by freeing the price a person sets for their own labor. By doing the opposite of what we have seen here. Those that have money will be able to buy more when businesses re-calibrate their prices down now that they are saving money on payroll, and those that don’t have an entry point to a job will find new doors opening. Rather than giving people more money, make it so the money they have in their wallets right now can go further.

*Minimum wage is just one of several examples of a government-forced regulation meant to destroy small businesses in order to centralize the economy within massive corporations, including environmental regulation and purposefully labyrinthine tax code that only expensive teams of accountants and lawyers can unravel. It’s the multi-faceted attack from all of these that what will eventually be small business’s downfall.

Citations

Hazlitt, H. (1979). Economics in One Lesson: The Shortest & Surest Way to Understand Basic Economics. New York, NY: Three Rivers Press.

Sowell, T. (2011). Basic Economics (4th ed.). New York, NY: Basic Books.

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