The minimum wage is designed and intended to protect the poor and unskilled. A law designed for the betterment of lower income people in the market. We’ve seen much discussion over minimum wage laws recently, as we often do from time to time.
As with any policy, we seldom reference the negative effects of its implementation. Cost-benefit somehow goes out the window while we pander to emotion. Both parties do it, but Democrats often raise the issue, while the Republicans soon jump on board. These laws are largely popular in America.
However, there are a few problems with minimum wage laws, so let me spell them out and let you make up your mind about it.
But first and more broadly, I believe the reasons for arguing against minimum wage are sound. If you believe in free market principles, minimum wage laws highlight a fallacious world policy view. In an economic transaction, the buyer wants to pay $0 and the seller wants $5. The economic forces at work alleviate the imbalance to come to a mutual agreement of $2.50. Why have laws on wages when they too are subject to the laws of supply and demand? The employer wants to pay $1 per hour while the employee wants $200, the market forces at work in every other good or service are the same in this transaction—the irreconcilable demands by each party turn into a cooperative contract that helps everyone.
In a typical transaction, a buyer wants the lowest price while the seller wants the highest price. Yet the reality of the market steps in to ensure that these economic actors face limited means, both time and money. These limitations ensure competing demands, or the employer realizing he cannot pay $1, nor can the employee expect $200.
The laws of supply and demand don’t miraculously disappear with wages and labor. Employers are exactly the same as buyers within the market. They want to pay the lowest possible wage while the employees or sellers want the highest wage. This is always true. The buyer/employer knows that the employee/seller has other options for his or her services to be used, and the employer must consider many market forces like productivity and credentials that equate with an efficient output of the companies resources. This applies to everyone from fast-food workers all the way up to executives.
You also see states pass higher minimum wage laws than currently mandated by the federal government. Some even calculate the amount for a “living wage.” Whether state or federal, it doesn’t rest on sound policy. For both state and federal policy, if private contracts in the labor field are going to be successful, they need a large amount of flexibility.
Now to the misconceptions. What are the reasons we hear about minimum wage laws? Well, most say they help the poor and unskilled or they provide greater prosperity to a larger number of people. What studies don’t show are the invisible effects of these laws.
If helping uneducated and poor individuals is the goal, why pass laws that will almost guarantee a decrease in a worker’s ability to choose other types of employment? What about other workers who weren’t hired because employers cannot afford to pay another worker a minimum wage, but could bring on another person if he could split the minimum wage in half and pay two people instead of one? What about the productivity of the worker who now was paid much higher than his or her skill set brought? And finally, what about the workers who must be let go because their skills don’t justify their compensation?
We can see the harmful effects of this here in our own communities in Mississippi. The most harmed are blacks and younger people. Given our demographics, these two categories are typically the most uneducated and the first people entering into the marketplace with limited skills. Moreover, look at the fast-food industry. Why do people think fast food is designed to be a permanent place of employment for all workers? Fast food, perhaps not the case for management positions, is a relatively low skill-set job. But don’t confuse this with the people that work there while in school or the people who do so to gain more marketable skills in the workforce. That’s the point of these types of jobs.
In my estimation, the question should never be: Why are there so few haves and so many have nots? The question should always be: How easy is it for the have nots to rise up the economic ladder, and what policies have we put into place that block this progression? The slow and methodical reduction of poverty doesn’t come from government bureaus and mandates that rely on violent interference with freedom of association; it comes from the power of economic gain and free choice.
If we examine it in this light, we stop this confusing notion of playing the poor and the wealthy, and the employee and the employer, against each other. We recognize that the true goal of the free market is to have the most benefit to every party involved.
Even aside from minimum wage laws, I believe the greatest fallacy remains in the statement that when someone benefits from a voluntary and mutual agreement in the market, one person must suffer while the other gains. Not so. The purpose of someone choosing to work by agreeing to a voluntary wage is that the employer benefits by the employee’s productivity and the employee benefits by gaining a better monetary and skill-based identity in the marketplace.
The intentions of the minimum wage are no doubt good, but the consequences of those good intentions are not rendered harmless simply because they happen to be good.
Cory Ferraez is a third year law student from Columbus.
