The Moral Case against the Minimum Wage
This article was published on April 19, 2017 in The Georgetown Current, The Northwest Current, The Dupont Current, and the Foggy Bottom Current.
On March 30th, DC Mayor Muriel Bowser’s official Twitter account posted a tweet, which read, “Last year, we made a promise to increase the minimum wage to $15/hour and we kept that promise. #DCValues #SODA17.” Before celebrating the passing of last year’s bill, Mayor Bowser should order a study to evaluate the effects of this minimum wage legislation.
Mayor Bowser’s tweet came a week after Baltimore Mayor Catherine Pugh vetoed similar minimum wage legislation. Minimum wage laws are immoral and irrational interventions in the free market, which hurt the workers with the lowest skill levels and the least amount of experience. Imposing a minimum wage gives our elected officials the erroneous belief that they are helping the poor, but it actually hurts the most vulnerable members of the work force.
Minimum wage laws are in direct opposition to the core principles of laissez-fare capitalism and individual liberty. Simply put, government should not interfere in consensual agreements between citizens. According to Philosopher Ayn Rand, capitalism requires “…a separation of state and economics, in the same way and for the same reasons as the separation of state and church.”
Employment involves voluntary exchanges of labor for compensation, in which both parties believe they are receiving more than they are investing. The employer has calculated that the salary paid to an employee is less than the income the labor of that employee will generate. Conversely, the employee believes the compensation received is of equal or higher value than the time and effort put into the work. When the government artificially interferes with voluntary agreements, it engages in a form of central planning.
According to a 2016 study published by the Heritage Foundation, there is a strong correlation between economic freedom and economic flourishing. Central planning fails, because the hundreds of factors which go into both the employer’s and employee’s decision to trade services for compensation, can be never known by the state. Paternalistic laws, like a minimum wage, assume the state knows what is best for the individual. Economist Ludwig Von Mises noted that “All rational action is in the first place individual action.”
The economic argument against the minimum wage is one of common sense. By increasing the minimum wage from $8.75 to $15 per hour, a small business with ten full-time, minimum wage employees, would see their labor cost increase from $3,500 to $6,000 per week. That means the business has to make up an additional expense of $2,500 per week or $130,000 per year. Businesses have to either cut costs or increase revenue to offset these payroll increases. They can do this by firing workers, offering fewer benefits, increasing the prices of goods, or lowering their profit margins. This drive to cut costs inevitably leads to the mechanistic solutions to reduce the need for human labor. McDonalds, CVS, Amazon, Chipotle, Wells Fargo, and Panera Bread are just a few of the companies replacing low-wage workers with computers.
When the cost of labor is raised by the government, there is an equivalent increase in the cost to produce goods, but not an increase in the actual value of those goods. Therefore, the state is artificially setting prices for products. The minimum wage becomes a form of consumption tax and the poorest people are the ones who can least afford to pay it. Taxpayers ultimately pay for the raise in salaries under minimum wage laws, since the increased costs are passed on in the form of higher product prices and tax increases.
When business costs increase and employees are laid-off, it is the workers who are least able to perform their jobs who are fired. Workers entering the workforce for the first time are also faced with higher competition for fewer jobs. By hurting the most vulnerable workers, minimum wage laws are in conflict with the morality espoused under the collectivist ideologies of socialism and economic egalitarianism, the very ideologies used to justify a minimum wage.
Advocates of a minimum wage commonly appeal to emotions when they argue that the law will take care of the poor and help to provide a living wage. This argument is antithetical to the facts and to the verifiable, unintended outcomes of central planning wherever it is implemented. Legislation should be based on facts and falsifiable premises, not on emotional arguments. While voting for a minimum wage may make elected officials feel good about their actions, this immoral legislation actually destroys the very people they seek to help.