The Minimum Wage – Should it Stay or Should it Go?

I’ve been wanting to write a post about this for some time, and after reading Lou Dobbs column Congress stiffs working Americans I now have enough motivation.

For my part, I would be inclined to vote for politicians who would be willing to seriously consider abolishing the minimum wage entirely. My reasoning is that citizens of this country rarely benefit from government’s intervention in private industry, and I believe more people would be financially better off today if a minimum wage had never existed.

Here’s what I find specious about Mr. Dobb’s reasoning. First, here are the parts of his article I take issue with:

“Raising the minimum wage to $7.50 would positively affect the lives of more than 8 million workers, including an estimated 760,000 single mothers and 1.8 million parents with children under 18. But even this 46 percent increase would get them only to the poverty line.”

“The myth that raising the minimum wage will lead to job cuts is just that: a myth. In fact, research suggests just the opposite. According to the Fiscal Policy Institute, since 1998, states with higher minimum wages experienced better job growth than states paying only the federal minimum wage. Among small retail businesses in those higher minimum-wage states, job growth was double the rest of the country.”

His argument hinges on the evidence he uses to support the idea that if the minimum wage is increased it will not affect how many people are hired. He says this is a myth, but think about this from a common sense point of view. If you’re an employer, and you bring in a certain amount of money each month, and a certain amount of that money goes towards paying employees, and some of your employees are minimum wage employees, and suddenly you’re forced to pay them more money, where does that money come from? It doesn’t just appear. The employer will either have to cut costs, increase profits, or they can simply make due with less profit.

But what if profits are razor thin already, a common situation among business owners? Then the employer has to find a way to increase profits, or cut costs, and there is a reasonable chance that the employer will cut costs by letting enough employees go to make up for what he has to pay the others, and then he’ll try to increase efficiency by getting more work out of the other employees.

Mr. Dobbs’ research is virtually meaningless. There are many economic forces, and to say that since states with higher minimum wages experienced better job growth than states paying only the federal minimum wage during a certain period this means raising the minimum wage doesn’t harm job growth is to ignore all the other factors that could have led to the job growth. It ignores the valid idea that perhaps many more jobs would have been created if not for the minimum wage.

Ironically, one of the examples Mr. Dobbs’ uses to strengthen his case actually weakens it. He says “One of this country’s greatest business innovators, Henry Ford, made history almost a century ago by raising the salaries of his production-line workers far beyond the prevailing wage. Ford not only paid his employees well enough to buy the products they built, but he kept his employees loyal and productive. That’s also very good business.”

What Mr. Dobbs doesn’t point out is that Henry Ford raised the salaries of his workers “far beyond the prevailing wage” with absolutely no government intervention. He chose to do it because he felt it was good business. Wow, think of that, a business man raising wages for his employees without the government forcing him to do it. I believe there is a contingent of people in the US who believe that employers will do nothing that benefits their workforce without being forced to by the government. It simply isn’t true. What’s beautiful about capitalism is that, always over the long-term but frequently in the short-term, free markets force employers to make choices that naturally benefit their workers.

Why do I give my employees raises? Sometimes I do just because I can, believe it or not. But often the reason is because I feel that if I don’t, they’ll go work somewhere else and I need that employee to stick around. Giving them a raise is less expensive to me than replacing them. But I have never given an employee a raise because of the government telling me I had to.

If there were no minimum wage what would happen? Some companies might lower wages. That would hurt some people. They might not be able to continue at their current standard of living. Then they would have several choices. They could lower their standard of living. Most people don’t like to do this, but they have other choices. They can try to find a job that pays more. If they can’t find it based on the skills they possess they could get training or education to help them get a job that pays more. The opportunities are certainly out there.

But isn’t this mean-spirited and uncaring? In the short-run it can seem like it. But in the long-run it’s the kindest, most compassionate thing to do, because many people who previously felt comfortable will be forced to get more education. That’s a good thing. People who have more education are more likely to make sure their children are more educated. That’s a good thing. By putting people in difficult circumstances it forces them to do difficult things, and people who overcome challenges generally emerge better for it. The current system actually holds people back and encourages poor behavior. Raising the minimum wage would only increase the amount of bad behavior rather than providing motivation for people to improve themselves. The minimum wage is a form of welfare, and the existence of welfare the way the US government provides it tends to increase the behavior that puts people in situations where they need welfare.

Eliminating the minimum wage would hurt and be difficult, but lifting weights also hurts and is difficult. But just because something hurts or is difficult doesn’t mean it’s a bad thing.

Some politicians love to take advantage of these situations. They stir up those who stand to lose benefits and buy their votes by promising to keep the money coming. I think some politicians would like to see a majority of the people in the US on some form of welfare, be it the minimum wage, government provided healthcare, or actual welfare, because that would mean a majority of the people in this country are receiving money from the government, and those people would be easy to manipulate. All a politician would have to do is say “The other party wants to take away your money” and suddenly it’s easy for them to be voted in. Nevermind everything else that politicians wants to do, because money trumps everything else. But do you really want to be on welfare? Do you want to depend on the government to survive? Or would you rather have the dignity of making it on your own? If it’s the latter, then wake up and see what your politicians, the people you vote for, are doing. Are they helping people get off of welfare or are they trying to increase the number of people on it?

Lou Dobbs’ article is not entirely about the minimum wage. In fact half of it is how members of Congress just gave themselves another raise as they have done for years, and hnow they get paid $170,000 per year. I think that’s ridiculous. The only reason our founding fathers set up pay for politicians is so that someone who was poor could afford to hold public office. If no one got paid then only rich people could afford to give up their day job to be in Congress. But I think $170K is going a bit far. About a $100K less per year would be more reasonable, I believe, and I think that’s something Lou and I can agree on.