The Moral Case against the Minimum Wage

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.

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4 thoughts on “The Moral Case against the Minimum Wage”

  1. What about the children? Very well put, Jeff. Turning this knob so dramatically will have to have adverse impacts on inflation and unemployment. If it was so simple as passing a law, why not make the minimum $100?

    1. Thank you. There are many more arguments against the minimum wage, but I had to cut them out to stay under the 750 word limit. Be happy you didn’t have to suffer through the full 1,800 word article!

  2. Love the website Jeff and interesting article. I approach this very tough issue from a different direction. Based on my reading in the area, and basic logic, a minimum wage that is too high would adversely impact the number of low wage jobs (think what would happen if it was set at $30). PolitiFact did a nice summary of the research in this area and came to the same conclusion. http://www.politifact.com/truth-o-meter/article/2016/may/09/fact-checking-minimum-wage-debate/

    I think the more fundamental question is what happens if we kill the minimum wage in its entirety. The free market would have complete control over setting wages. I doubt that would have much of an impact on prevailing wages, but I assume there would be a number of outlier situations where employers pay the most vulnerable in our society extremely low wages (e.g., a garment shop that pays per piece equating to $3-$4/hr). Similar to OSHA standards for workplace safety, I do feel there is a moral imperative to provide basic protections to our workers, and the free market hasn’t been able to do that job on its own.

    So that brings me down on the side that we need some minimum wage to protect workers, which in turn goes to where it should be set. I have been astonished at how little wages have progressed for low skill workers in the past 25 years. I was making between $7-$10/hr in the early 90’s doing various forms of manual and low skill labor. Even my first job at McDonalds 30 years ago paid $4.50/hr – not that far from today’s minimum of $7.75.

    The other trend I have noted is that low wages both in the U.S. and abroad appear to be increasingly subsidizing the American lifestyle. Living in DC, we love taking a $7 Uber or Lfyt across town and marvel at how cheap it is. Or the dollar menu at fast food restaurants. Or the TV or laptop that costs us less in real dollars than it did 20 years ago.

    I don’t have the analytical skill to figure out where we should peg the minimum wage. I am pretty confident however that $8/hr does not allow someone to support himself or herself, let alone a family. This in turn presumably requires these folks to access the social safety net, which adds layers of bureaucracy and cost.

    The long term solution likely requires massive improvements to our education system, as virtually all low skill jobs are vulnerable to automation and/or offshoring. That is not our current reality however, so I think the minimum wage will remain a necessary forcing function until we sort out how to holistically upgrade the skills of our workers.

    1. Thanks for your comments. Your positions clearly come from a position of empathy and a desire to protect the quality of life of those at the bottom of the income
      ladder. I think most people who support the minimum wage also have good intentions. Essentially, my arguments boil down to main objections. The first is a moral objection to government interference in consensual agreements between citizens. The second is a pragmatic argument. You mention that you don’t have the analytical skill to figure out what the minimum wage should be and in that, you are not alone. It’s impossible for a government to determine this. Only the free market can determine the real value of products and services. Central planning has failed everywhere it has been implemented. As I state in the article, when wages are artificially raised, businesses have to make cuts. The employees laid off are always the least educated and those with the lowest cognitive abilities. These are always the the first people hurt.

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