Sunday, June 10, 2012

On Minimum Wage

The minimum wage is back in the news.  An article over at The Nation says that three democratic congressmen are pushing for a raise in the federal minimum wage from $7.25 an hour to $10 an hour- more than a 35% increase.  So far as I can tell, the basic argument is as follows: businesses that create the least-paying jobs are unfairly taking advantage of their workers, and can afford to pay them more.  Moreover, the proposed increase in wages will not substantially affect prices or unemployment, except possibly for the better.  The logical conclusion is that there needs to be a mandated minimum wage.

Opponents of the wage increases say basically the opposite: the pay increase to employers will be followed by an increase in prices.  That, and the wage raise will cause some people to be too expensive to hire, thereby causing unemployment.  Typically the conclusion is that the minimum wage is fine where it is and doesn't need to be raised because doing so can only hurt people and the economy.

The latter view makes a little more sense to me.  Even though I don't subscribe to it fully (I'd prefer if the minimum wage weren't mandated by law), it is worth outlining and addressing its foundations.

A common argument against an increase is that it can cause some people to either lose their job, or not get hired in the first place.  If some employers are forced to pay more, they might demand laborers with more skill, hanging the less-skilled potential worker out to dry.  Imagine that it happened to you.  Suppose you just graduated from college and are sending out applications and expecting to make about $40,000 per year, when some politician declares that those in your line of work must be paid no less than $50,000 to start.  Isn't it at least plausible that your would-be employers would want someone with more experience?  If you were the employer, what would you do?

Another case against the forced wage raise is that employers might adjust for having to pay for the increase by either raising the prices of the goods/services they provide, or by purchasing less of other goods/services they need to make their business run.  A landscaping company, for example, might have less to spend on gas and equipment maintenance if it is forced to spend more money on its workers.  This phenomenon is especially true for businesses that rely most heavily on human labor, or for less-established companies that operate at the fringes of viability.  A mandated increase in wages might force such companies to either close their doors or never get the chance to exist in the first place.  Is it inconceivable?

No, it's not inconceivable.  It very well might not happen that way at all.....then again, it might.  And therein lies the real reason for abolishing the minimum wage- the outcome is unknowable for the individuals involved, and the dictates are coming from the people who are the farthest removed from those who will be most affected.

I'll be the first to admit that raising the minimum wage can cause some people to be better off that they were before.  No dispute there- after all, no politician raves about a new policy that *isn't* designed to buy votes from its intended beneficiaries.  But it can just as easily cause others to be worse off.  To identify all the particular winners and losers in advance (let alone the degrees to which they win or lose) is impossible, even to the people who favor the wage raise.  The best we can say about fiddling with the minimum wage is that it will cause tradeoffs within the economy with some people coming out ahead and others not.  The end result can't be held to be any better or worse in aggregate, just different.  All the political class is interested in is whether the net result will benefit them when the next election comes.

Why not raise the wage to $20 per hour?  Or $100?  The usual answer to this is that, past some point, it obviously becomes absurd or impractical.  And that's true, it does indeed become absurd.  But when?  By what metric?  How is that to be decided?  Do Dennis Kucinich and Jesse Jackson Jr. know what it "should" be?  Do they know which wages are "best" and for whom?  Was any analysis attempted which arrived at the $10 figure, or did they go with it because it's just an appealing number?  It's not even pretended to be something that was arrived at by any sort of calculation.  They just made it up.

What really bothers me is the arrogance that politicians display when they, with their amazing pay and pension and benefits (for life), insist on imposing their will on the rest of the country as though it's their job.  In this case, the arrogance comes in the form of saying that no task, regardless of how little effort or skill it takes to carry out, is conceivably worth less than ten dollars per hour.  Absolutely nothing.  Bagging groceries, watering plants, cleaning windows, picking weeds, etc.- either you're paying at least $10 an hour, or you're committing a crime.  Do you own a small business in the inner city and want to pay some kid to keep the shelves faced and bag groceries for $7.50 an hour?  Maybe $9.99?  Unless you have enough firepower to keep the police away, you better not let the labor department find out about it.  Considering that governments have shut down curbside lemonade stands for health safety issues, the example is not farfetched.

So when I reject the idea of a minimum wage, I do so not because I'm a 1% sympathizer or because I like exploiting workers, but because of my conviction that no politician has the right to use force to impose arbitrary rules on everyone else in the futile pursuit of what he thinks is best.  Nobody should have the right to say who works for how much except the two parties involved.  It's a private issue.  And until one side is being defrauded or lied to, government simply has no legitimate role to play.