In a first year economics, a student will learn that when the government imposes a floor or a ceiling on prices, it will distort the market. Price floors, which is what a minimum wage is, create a surplus of a good or service. This surplus of labor arises from an increase in a supply in labor and a reduction in demand for that labor.
Raising the minimum wage will encourage employers to trim unnecessary employees or reduce benefits. If that is not possible, they will look into raising prices and reducing the quality of goods and services. Only after those options are exhausted will they look into taking a pay cut themselves.
Overall, minimum wages are not only an example of the government interfering in the free market, they negatively impact the economy. In an ideal world, minimum wages would not be needed. Unfortunately, we do not live in an ideal world. In this world, we have a government that is controlled by special interests that micromanages the economy. Often these corporatist policies work to the detriment of the workers.
Examples of these policies include the handling of illegal immigration. By allowing our country to be flooded by undocumented workers, it creates an increased supply that depresses the market value of labor. Another example is the Fed’s handling of inflation. When the market favors the worker and the market value of labor increases, the Fed will move to slow down the economy.
There is a problem here. The minimum wage is acting as a limitation to the corporatist policies. If the minimum wage was to be eliminated, as some politicians claim to support, these policies will further depress the market value of labor. This would result in an increased dependency on entitlements. In other words, it would allow the corporatists to further socialize their costs of doing business.
If one considers the pragmatic reasons for having a minimum wage, one would have to wonder if these claims to eliminate the minimum wage is empty rhetoric. The minimum wage acts as a standard of pay for low skilled workers. This eliminates any need for businesses that employ low skilled workers to negotiate wages as their competitors do the same.
Without a minimum wage, there will not be a standard and it would open the door for those workers to negotiate their wages. For the corporatists, this presents a risk. The risk is that these workers would start to demand to collectively negotiate their wages and possibly outside of corporate union control. Plus, as history tells us, they may become unruly.
Another point to consider is that the minimum wage is the result of a democratic process. It is effectively us, The People, saying to businesses that any compensation less than this minimum is considered to be immoral. While that does not mean a minimum wage is appropriate, the wishes of the voters should be considered.
This leads up to the current debate: the minimum wage should be raised to $15. In terms of purchasing power, this amount would far exceed the highest it has ever been (in 1968, it was roughly $11 in today’s dollars). Clearly, those who are trying to get the minimum wage increased are aiming high.
Does the minimum wage need to be raised? I believe that it should for a number of reasons. First, the effects of the previously mentioned corporatist policies have made it near impossible for low skilled workers to get any leverage to negotiate higher wages. Second, the current minimum wage is not sufficient. If it was, there would not be the need for government programs such as Obamacare and there would not be an over dependency on entitlement programs that really should be safety nets.
This raises the question of how much should it be. The number of $15 is clearly too high based on historical purchasing power trends. It needs to be raised to a level where there will be significantly less people who would need Obamacare subsidies and dependent on entitlement programs.
While the demands of the supporters are unreasonable, there are issue with some of the common arguments by the opponents. One argument is that those who make minimum wage do not deserve that much. Often those making this argument point out some mistake in their fast food order. First, we all make mistakes. Second, one should consider the economics. If a business is paying the minimum for a job, one certainly cannot expect high quality applicants. The adage of “you get what you pay for” applies here.
Another argument is that they should not get that much because [insert occupation] does not make that much. The problem with this argument is that it makes the assumption that the occupation in question is being paid at true market value. Just because a specific occupation is being underpaid, it does not mean that other occupations do not deserve to make more.
In conclusion, even though the minimum wage has a negative effect on the economy and represents a government intrusion in the market, it is a necessary evil. In an ideal world, a minimum wage would not be needed. However, in that ideal world, corporatist policies that depress wages would not be allowed either.