The other woes of minimum wage

September 22, 2013 § Leave a comment

When opponents of the current minimum wage complain that it is too low, then show examples of fast food joints which pay above the state minimum wage, in an attempt to prove that fast food businesses can afford or bear to pay more than the mandate, it tickles me.

Why this tickles me is that this only exemplifies the central point for the opposition to minimum wages: freedom.

First, how can a third party, in this case, decide what is fair and not? (Of course a judge and/or jury is the third party in a normal case but this isn’t a case of committing fraud, breaking a contract, etc., whereby a third party can rule on fairness.) If two parties agree to something, the parties obviously find the exchange beneficial to their interests, needs, etc. If I buy a single apple for $5, who is to decide if the price is unfair? More important, who is–and what gives them the authority?–to prohibit the sale of such apples for $5 a pop? (we know the answer to this) In a free society, if I value the apple at such a price, I should be allowed to purchase it.

Second, we must remember that wages are a price for labor. One is paid $10/hr for his labor. Like the apple example, if two parties agree to something, who is to prohibits such an exchange?

People oppose the rise of minimum wage a few reasons: for economic reasons (yet still support the minimum wage), and those who oppose any price control, like the minimum wage (this can be for moral reasons and will be explained further below).

If one believes in freedom, one believes people should be free to make their own decisions. This includes the freedom to accept a price for your labor (again, wages), to deny a price and to offer a price. To oppose it for economic reasons, while supporting a minimum wage in general, isn’t a strong enough argument against it, I think.

But for economic reasons, let us say, for example, Store A pays their employees $10 and Store B pays $8. And the people (that is, society) demand action (that is, uses the government to force Store B) for higher wages and use Store A as an example of Stores capability to pay higher wages. Now owners of Store B are forced to increase wages then as a result pass on this new cost to consumers; now candy, chips and toilet paper prices raise 20%. Likely, consumers will notice this and take their business elsewhere, like maybe Store A, to buy their candy and so forth. As a result Store B loses business, closes shop and consumers lose out on choice, variety and a central tenet of the free market: competition.

(Another and the usually the main, economic explanation for opposing the minimum wage is the negative effect it has on low-skilled workers, the very group the minimum wage is intended to help. Laborers willing to accept (or skills are worth less) less than the minimum wage are blocked out of employment. More on this reasoning here.)

For moral reasons, Store B is closes due to the use of force. They were forced to buy a service (labor) for a price which they didn’t agree to. It is like me being forced (by the government, of course, because stores can’t force you to make purchases) to buy a football for $100.

Some day this is an exaggeration–a lionization of the situation. But I dare the person to start a business and pay his employees less than the law mandates.

Despite the minimum wage laws, workers are still not paid a fair, living wage, and certainly without them, would be paid pennies an hour and resort to cannibalism, so the story goes. The result of abolishing the minimum wage, and all price controls, is for another post. Like all things, though, a repeal of government intervention doesn’t mean the end of the world.

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