Our blue states and “progressive” major cities now seem to be competing to determine which jurisdiction can establish the highest minimum wage. At this moment, Los Angeles is in the lead at $15.37/hour (for hotel workers), with Seattle and San Francisco close behind at $15.00 (all workers). Obviously, such laws violate the freedom of employers and employees to enter into consensual arrangements at any rate of compensation below the legal floor, and thus are ruled out on libertarian principles.
Sadly, the electorate is generally unmoved by appeals to abstract notions like freedom of contract, so opponents of such laws often resort to a handy reductio ad absurdum: if raising the minimum wage to $15/hr. is such a great idea, why stop there; why not $30/hr. or even $150/hr.? The point of this argument is easy to grasp, even by the economically illiterate. Clearly, a floor of $150/hr. would not produce wealthy workers, but would instead generate layoff notices for most of them.
This is a powerful argument, because even those who believe that minimum wage laws would benefit society at large are hesitant to sacrifice the jobs of many innocent people in order to achieve this “greater good.” Therefore, proponents of wage floors are driven to claim that there is a mandatory wage level that represents a sort of golden mean, where society will get the utilitarian benefits of higher wages while experiencing no or negligible job losses.
This stance is then supported by references to real world phenomenon. It is a good idea to take two aspirin for a headache, but potentially fatal to take the whole bottle. It’s wise to stay well hydrated on a hot day by drinking a bottle of water, but extremely stupid to rapidly drink a couple of gallons. So, all we need to do is set the minimum wage at the right level, and all will be well.
However, this is a laughably bad argument that is almost self-refuting. There is a well-understood physiological explanation for why (say) taking two aspirin are medicinal, while taking the whole bottle is poisonous, even fatally so. As a result, physicians are not simply guessing when they recommend a particular regimen. The same thing can be said with respect to water poisoning.
The contrast with minimum wage laws should be obvious. If raising the floor from $15/hr. to $30/hr. prompts employers to terminate many positions, why would this same incentive structure not operate when the minimum is moved from $7.50 to $15.00? In both cases, there are apparently jobs only worth retaining at a cost below the legal minimum. Accordingly, the idea that there is some “magic” rate at which negligible employment losses will occur is just wishful thinking.
The second point, is that the minimum wage actually harms those it purports to help. Imagine two fairly typical job-seekers, both of whom are in their late teens or early twenties. “Joe” is from a solidly middle class, stable background, received a decent education in his suburban schools, and has dropped out of college after two years. “William” is from a minority group, grew up in the inner city under difficult circumstances, and dropped out of high school.
Joe will not accept employment at less than $15/hr., as he has what he regards as a more palatable alternative. That is, live with his parents, take the occasional class at his local community college, and wait for something more suitable to come along. On the other hand, William, desperate for a first job, would eagerly accept any job paying at least $8/hr.
Clearly, raising the minimum wage from $9.00 to $15.00 forces the “Williams” of the world to compete with the “Joes,” to their disadvantage. Most employers will favor the latter, as the applicant will be better educated, have more relevant skills, and likely be a more polished and effective communicator. As Milton and Rose Friedman wrote back in 1982 (in Free to Choose):
The government first provides schools in which many young people, disproportionately black, are educated so poorly that they do not have the skills that would enable them to get good wages. It then penalizes them a second time by preventing them from offering to work for low wages as a means of inducing employers to give them on-the-job training. All this in the name of helping the poor.
There is a direct parallel here to the economically perverse practice of rent controlled housing. Those who intensely desire particular apartments (because, for example, they are near their work) cannot freely bid for them, while landlords are motivated to find the most creditworthy tenant so that they at least have the greatest assurance of receiving the permitted rent. Thus, these units tend to be inhabited by the wealthy, who are happy to receive this foolish subsidy.
Nietzsche wrote that “One has not watched life very observantly if one has never seen the hand that…kills tenderly.” It seems to me that this is pretty much the full-time job of the welfare/regulatory state.
