What’s wrong with minimum wage laws?

In the ethics class I teach I typically ask my students this question, “Should people be able to freely make their own economic decisions without the approval of the government?” Almost always the whole class responds “Yes.” Then I ask this question, “If I ask Bob here if he’d like to come clean my gutters, and that I would pay him $5 an hour to do so, and he agrees, should we be able to reach that agreement?” Almost always the whole class stays with “yes.” Then I point out what should be obvious, “Bob and I, as things stand today, could both be arrested for reaching that agreement. It is against the law for me to pay him $5 an hour and against the law for him to work for $5 an hour.” Suddenly, my students, most of them working entry level jobs, and entering the classroom all in favor of minimum wage laws are transformed into lovers of liberty. They see the affront to the dignity of us all that is inherent in such laws. That, however, is just one reason minimum wage laws are terrible.

That said, one common objection betrays an ignorance of how economics works. Many who are on the side of the angels in opposing such laws are on the side of the serpent in their reasoning. “If President Biden succeeds in making $15 an hour the minimum wage across the country it will cause all sorts of prices to dramatically rise. The Big Mac you may pay $5 today will suddenly cost $15. Nope. It won’t. The reason it won’t is because the price of a Big Mac has precious little to do with the cost to bring one to market. Don’t believe me? Try this experiment. Suppose instead of costs going up, they drop dramatically. Someone discovers a way to make Big Macs for 5 cents. Will the cost drop to 15 cents? Of course not. The Big Mac will fetch what it can from the market. That is, it’s sale price is determined not by its production costs but by the consumer. Just about no one would pay $15 for a Big Mac, whatever it might cost to produce one. Just about no one would sell one for 15 cents, whatever it might cost to produce one.

The reason this matters is because it gets at the real problem of minimum wage laws. They do not raise costs. Instead they price unskilled labor out of the market place. Just like no one would pay $15 for a Big Mac, no one would pay $15 for an hour of labor from an unskilled laborer. It has nothing to do with the kindness or cruelty of ownership, everything to do with the market for labor. The government, no matter how powerful it may be, hasn’t the power to make consumers value a good or service (including the labor of others) differently than they value it.

But shouldn’t a person be able to make a decent living working 40 hours a week? Says who? As a writer, one successful enough to have published more than a dozen books with legacy publishers, successful enough to publish thousands of articles over the course of the last 35 years I would guess I’ve earned about $100,000, not a month, not a year, but in total. That’s less than $3000 a year. Taking into account all the hours I put in in both research and writing, I’ve earned considerably less than $3 an hour. That is not a decent living and is the fruit of actual skilled labor. Why are my earnings so low? Because no one is interested enough in my writing to pay more for it. There is insufficient market demand for me to make a decent living working this job for 40 hours a week. That’s ok. The market doesn’t owe me a living. My publishers are not mistreating me. My audience isn’t cruel and uncaring. The only ones cruel and uncaring are those politicos who say to those whose labor the market values at less than $15 an hour, “No work for you.”

Once again a government power grab gets disguised as compassion. Once again the ones “helped” are hurt the most. Once again the correct answer is liberty.