One of the more memorable lessons from my college microeconomics class focused on the effects of minimum wage laws and other price controls. The professor used a neat and simple graph to quickly prove in mathematical terms that increasing the minimum wage leads to higher unemployment as well as net loss in economic output. Rather than plagiarize my old textbook, I want to simply focus on the laws’ utter absurdity.
Besides distracting from Obamacare, what is the purpose of increasing the minimum wage? The most common answer you’re likely to hear revolves around ensuring that workers are paid a ‘livable wage’. Livable for who? What does ‘livable’ even mean? These questions are obviously rhetorical, but there is a point here. Whatever number is chosen will be completely arbitrary. Not everyone is seeking the same wage or even the same number of hours. If jobs were being offered at rates that didn’t enhance someone’s life at some level, there would be no takers and the wage would have to rise. I would love for someone to clean my apartment for five dollars, but it isn’t going to happen. Employment is voluntary, so clearly if a wage is being paid, it’s livable for someone.
As alluded to earlier, a minimum wage is nothing more than a price control or more precisely, a price floor. Imagine if the government enacted a law tomorrow mandating that no new car be sold for less than $30,000. What would happen? It should be pretty obvious that fewer people would buy new cars and those that did wouldn’t buy a stripped-down compact car. There would also be a ripple effect in the form of more demand for used cars, which would make them more expensive. That would mean fewer people could own a car at all. The same phenomenon occurs when you set a minimum wage. The least skilled and experienced workers get priced out of the labor market entirely and cannot, therefore, gain skills and experience to make more money in the future. Fewer business models become viable as the price of labor rises. With fewer people working and lower corporate profits, there is less tax revenue and more welfare spending.
Minimum wage laws are nevertheless, popular. People must believe that they work and there’s no doubt some get pay increases when the minimum is raised, but those same people will also pay higher prices for essential goods and may end up with reduced employment opportunities. A grocery store owner cannot fire all his minimum wage employees at the drop of a hat, but over time, he will make adjustments such as filling future openings with experienced workers rather than inexperienced ones as well as raising prices where he can. This type of behavior is no different than the behavior we adopt as consumers. When the price of a good goes up, we may not buy it or we may buy less of it. It seems like common sense, but it isn’t for most people. They do not regard employers as rational consumers of labor, but instead have a much more marxist view. Greed is often referenced. I spoke with a co-worker a couple weeks ago who couldn’t understand why his uncle who owned a business and was wealthy according to him, was going to cut his staff rather than simply pay all of his workers more in the wake of New Jersey raising its minimum wage. He intuitively believed that his uncle’s wealth and business existed magically and didn’t consider the fact that he has competitors or that a certain rate of return is required to justify putting his own fortune at risk.
In all likelihood, leftists like President Obama know all of this and also know that pushing minimum wage hikes is good politics. That’s especially true now that his signature law is crashing and burning for all to see. A distraction was desperately needed and this issue was chosen for a reason. The Right will never win the minimum wage argument. Marxist and leftists look at a profitable company and cannot understand why some of those profits cannot simply be transferred to the workers in the form of higher wages. Unfortunately, the average person is also conditioned to think this way by the media as well as by their own economic illiteracy. Walmart is a favorite target of the left as well as a useful punching bag despite the fact that so many low income people benefit from its existence. While it is a very profitable company, it is not a high margin business. It is volume-driven and requires an enormous amount of capital to bring goods to market at such low prices. The second that Walmart cannot provide its shareholders with an acceptable rate of return, that capital will flow away from Walmart and toward businesses that don’t pay above-market wages. If the average person cannot connect the dots between low costs and low prices in the country’s largest and most visible retailer, there really is little hope of turning the majority against minimum wage laws and it would be truly absurd for the right to engage Obama on this issue. Focus should remain on Obamacare, which is not only unpopular, but is also a massive and hidden minimum wage hike.
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