The Minimum Wage: Immoral and Inefficient

Democratic politicians are desperate to make up for ObamaCare’s disastrous roll-out.  Thirteen states are increasing their minimums this year, and some Democrats believe raising the national minimum wage is a winning campaign issue for November.

There’s no doubt that raising the minimum wage would reduce employment and slow economic growth.  Worse, government wage-setting is immoral.  It is unfair and wrong for politicians to posture as philanthropists while forcing other people to pay higher salaries.

The first question is the minimum’s impact on employment and price levels.  The answer is clear:  the cost of higher wages will be borne in varying degrees by customers, workers, and investors.  As I wrote in the American Spectator:

as Nobel Laureate Milton Friedman observed, there ain’t no such thing as a free lunch.  Arbitrarily raising the cost of labor—there is no principled basis for choosing any particular government minimum—will increase prices, reduce investor returns, and cut employment levels.

Most vulnerable are workers with the least education, experience, and skills, who tend to be young and minorities.  Forcing up wages will not only reduce overall employment, but shift jobs toward higher-skilled workers who are more productive and thus warrant higher pay.  The minimum wage also encourages mechanization, since it makes economic sense for companies to invest more in machines to spend less on labor. 

In effect, the minimum wage is a tax on labor-intensive companies.  No surprise, then, as explained by Mark Wilson of Applied Economic Strategies in a Cato Institute Policy Analysis:  “The main finding of economic theory and empirical research over the past 70 years is that minimum wage increases tend to reduce employment.” 

The strangest claim may come from the Financial Times, which editorialized:  “a higher wage would stimulate the economy without adding a dime to federal spending.”  However, to the extent raising the minimum increases the total amount of wages, it does so by redistributing the money from other people, who end up with less to spend on consumption. 

No doubt, the employment impact of a small increase, especially if salary levels have been rising, would be modest, which explains recent economic studies demonstrating lesser job loss.  But the less significant the increase, the less meaningful any potential benefit.

In contrast, those who claim that raising today’s minimum would have no impact on employer behavior fail to demonstrate the courage of their convictions.  If government can hike wages without harm, why stop at $10 or $15 an hour?  Why not go to $1000 or $1500?  Then everyone in America could be rich at no cost to anyone!

Yet there is an even more fundamental issue.  The minimum wage is the modern perversion of compassion into coercion:  I believe there is a moral imperative for you to earn more, so I force someone else to pay more.  I feel moral while sticking someone else with the bill. 

However, if “we,” the citizens of America, believe people should earn more, then “we,” the citizens of America, not a few labor intensive businesses, should pay for those above-market wages.  Opposing the minimum wage is simple fairness.

While many advocates no doubt are true believers, for some fairness talk is pure twaddle.   John Cassidy wrote in the New Yorker:  “In the current political environment, there is little chance of pushing through another hike in income-support programs.  Raising the minimum wage pushes the burden onto corporations and consumers.” 

Washington should be systematically reducing, not increasing, the cost of doing business.  Yet the regulatory-happy Obama Administration has been imposing multiple burdens on commerce, starting with ObamaCare. 

The next time someone rises to support arbitrary government wage-setting, they should be asked what they are doing personally to help the economically disadvantaged.  Raiding the wallets of others does not count as compassion