Minimum Wage Laws

Prior to the late 1930s, the Supreme Court was holding that state legislation that regulated economic activity violated the Due Process clause of the Fourteenth Amendment. A good example involved state minimum-wage laws. Holding that a voluntary contract between an employer and employee was an essential aspect of human liberty, the Court had previously held that state laws that took away such liberty were a violation of "substantive due process." After 1937, however, the Court's protection of economic liberty from state infringement became a thing of the past, again as a result of the ideological realignment ...

The reason a person works is precisely so that the person will not live in poverty. The minimum wage law does nothing but specify the floor below which a person may not work, and thus it can only, on the margin, increase the likelihood of poverty ... [The law] says to the worker, in effect: you may not offer too low a price for what you have to offer or else the government will show up and crack some skulls. Thus it doesn't do any favors to the worker; instead it removes the control that the person has over the conditions under which he or she may offer to work.

The minimum wage law is an obvious violation of the rights of employers and employees to bargain freely and come to mutually beneficial terms. (The common belief that workers are at an inherent disadvantage with employers is part of the Marxian residue that coats our culture.) ... [A]s economists have argued for decades, the minimum wage harms the most vulnerable members (and potential members) of the labor market by pricing them out of that market. It is about time that advocates of the minimum wage explain how Congress has managed to acquire the power to repeal the law of supply and demand.

Prior to the first federal minimum wage bill passed on the 1930s, there was virtually no difference between black and white teenage (i.e., unskilled) unemployment ... After the minimum age bill is passed, however, we see an increase in black teenage unemployment relative to whites, since ... employers ... no longer incur a market penalty for allowing racism to dictate their market decisions.

Remember that the consumer can always choose to forgo a product or service altogether, or to produce it outside of the market. If the government hiked the minimum wage to, say, $50 per hour, this would annihilate the child care industry, as plenty of working parents would elect to stay home with the kids.

... trade unions, suffer from a false conception that through their use or the threat of force, they are able to raise wages permanently above the market's estimate of the value of various types of labor. Arbitrarily setting wages and prices higher than what employers and buyers think labor and goods are worth merely prices some labor and goods out of the market. ... when unions impose high nonmarket wages on the employers in an industry, the unions succeed only in temporarily eating into the employers' profit margins and creating the incentive for those employers to leave that sector of the economy and take with them those workers' jobs.

The minimum wage is directed at low-skilled workers. If government sets or raises the minimum, employers have an incentive to use fewer low-skilled workers; employers will substitute machines where possible (have you seen how automated fast-food restaurants are these days?) or switch to higher-skilled workers. The minimum wage, therefore, harms the people most in need. Some lose jobs, and others looking for jobs won't find them. That is not the only consequence. Some workers might retain their jobs but find that some benefits have vanished: there may be less on-the-job training and fewer workplace amenities.

A Democrat beholden to Big Labor proposes an increase in the mandated minimum wage. Republicans beholden to Big (and small) Business defeat the bill ... Both sides will claim to care about the poor, but "caring" means they can be counted on to utter the "right" words on cue ... [T]he minimum-wage prices low-skilled workers out of the labor market. Some lose their jobs; others never get hired; still others are required to do more work to justify the increased pay. Organized labor knows that some workers are locked out, which is why it wants an increase—it cuts down on the competition.

This week, fast-food workers have engaged in 24-hour strikes ... demanding an increase in the minimum wage from $7.25 to $15 an hour ... The low minimum wage, however, is not the cause of their problems ... Those who fixate on the minimum wage unwittingly do struggling workers a disservice ... What's wrong with simply doubling the minimum wage? The answer is that wages are not arbitrarily set ... in an extreme hypothetical example, in which the minimum wage in the fast-food industry is raised to $100 an hour. What would happen to employment? It's easy to see that it would plummet as the industry itself faded away.

... researchers have pointed out a unique harm done by LWOs. ... High school dropouts learn that in wage determination, politics trumps education and training, and the more productive learn that their training and education provide fewer advantages ... younger people still in school will have less of an incentive to stay there.

Just what is a living wage? It usually means enough income to support a family of four on one paycheck. ... According to a recent study ... fewer than one out of five minimum wage workers has a family to support. These are usually young people just starting out. ... What the so-called living wage really amounts to is simply a local minimum wage policy requiring much higher pay rates than the federal minimum wage law. It's a new minimum wage. ... Neither the advocates of this new minimum wage policy nor the media — much less politicians — show any interest whatsoever in facts about the consequences of minimum wage laws.

Milton was a beacon of light on issues such as the minimum wage law, free trade, and rent control. This might not seem like much to radical libertarians, but, what with the Democrats recently seizing more power, and promising to impose wage levels on those who can least afford them, the unskilled poor, and with hundreds of economists signing a petition in support of this truly vicious and pernicious legislation, Milton's valiant, witty, wise, eloquent and yes, I'll say it, inspirational analysis on this issue must stand out as an example to us all.

The idea that minimum wage legislation is an anti-poverty tool is simply sheer nonsense. Were it an anti-poverty weapon, we might save loads of foreign aid expenditures simply by advising legislators in the world's poorest countries, such as Haiti, Bangladesh and Ethiopia, to legislate higher minimum wages. Even applied to the United States, there's little evidence suggesting that increases in the minimum wage help the poor. Plus, according to the [BLS], only 2.2 percent of working adults earn the minimum wage. ... one effect of minimum wages is that of discriminating against the employment of low-skilled workers.

To understand how people can benefit from the minimum wage, let's examine the general principle of Congress setting minimum prices using a non-labor example. Businessmen and labor unions frequently belly-ache about foreign manufacturers charging too low a price for a product. They call on Congress or the White House to bully foreign manufacturers to raise their produce prices ... Their sole motivation is to set higher minimum prices on foreign goods so they can get away with charging higher prices for American-made goods ... The identical principle explains the union's push for higher minimum wages.

There was no federal minimum wage in the United States until 1938. ... in Adkins v. Children's Hospital (1923), the Supreme Court ruled that a minimum-wage law ... was 'an unconstitutional interference with the freedom of contract included within the guaranties of the Due Process clause of the Fifth Amendment.'

... raising the minimum wage has everything to do with politics and nothing to do with economics. ... those who are looking for an entry-level job ... are happy to see any increase ... And so are the politicians in Congress, who are trying to pick up votes while they pander to the numerous 'anti-poverty' special-interest groups.

The advocates of minimum wage rates, whether decreed and enforced by government or by violent action, contend that they are fighting for the improvement of the conditions of the working masses. ... However, the problem is precisely whether there is any means for raising the standard of living of all those eager to work other than raising the marginal productivity of labor by accelerating the increase of capital as compared with population.

... if the government coercively raises the price of some good (such as labor) above its market value, the demand for that good will fall, and some of the supply will become 'disemployed.' Unfortunately, in the case of minimum wages, the disemployed goods are human beings.

... let's raise the minimum wage to $15.00 an hour ... We deal with that by passing a maximum price law ... pass a law making it illegal to fire anyone because of a minimum wage law increase ... put some words on legislative paper to the effect that any employer who goes out of business because of the minimum wage law is guilty of a felony ...

The economic case against minimum wage laws is simple. Employers pay a wage no higher than the value of an additional hour's work. Raising minimum wages forces employers to dismiss low productivity workers. This policy has the largest affect on those with the least education, job experience, and maturity.

Once you strip away the rhetoric, a minimum wage law simply outlaws work below some state-mandated wage floor. Furthermore, a business that hires a person who is less productive than the minimum can be fined and shut down, and a worker who dares price his services too low will be forced to stop. ... Now, ask yourself: how can poor working people be made better off by laws that restrict their options? ... Poor people and young workers, and the old and the disabled, have few economic tools at their disposal. One of them is the freedom to lower the price of their labor. The minimum wage makes that impossible.

Despite good intentions, calling on government to set a minimum wage merely affirms the power of politicians, bureaucrats, and the ruling elite generally while leaving low-skilled people dependent on their legendary benevolence. In contrast, the radical understands that if low wages are a persistent intergenerational phenomenon, the problem is likely institutional and can't be solved by hiking the minimum wage ... Wages are the prices employers pay for labor services. We usually understand that if the price of a product or service goes up, people demand a smaller quantity (other things equal).

... Stiglitz's original comment stands. Unemployment is the problem, not wages. If unemployment is the real problem why would he lend is his support to a policy that will only increase it? Minimum wage is a great political tool for politicians. The minimum wage promises that wages will go up without any negative effects. To the common person, this seems like a great idea.

The reduction in employment that results from increases in the minimum wage, which is concentrated among those workers with the fewest skills, is the cruel 'dark side' of such legislation. ... It is not that there are too many low-wage jobs, but that there are not enough jobs for low-wage workers; and minimum wages make things worse.

After World War II, thanks to the theories of John Maynard Keynes, most economists and policymakers believed that government should manage the economy through broad discretionary powers over the money supply and the budget. Friedman went against the grain ... He applied this impeccable economic reasoning to issues across the board, including the minimum wage. Considering that people still think government should set the minimum wage, it's clear that the lessons of economics have to be taught to each generation. That's one reason Friedman will be missed.

A minimum wage law, they would have us believe, is the open sesame to the Utopia of higher living standards for everyone, particularly for the poor. But is it? ... These men ... were recognizing a simple economic principle. Goods or services, priced higher than demand justifies, will not find a buyer on a free market. ... The theory applies in the same way, whether one is dealing with the price of wheat, cotton, butter, or an hour of a man's labor. ... If a minimum wage rate is set higher than the market rate, it hurts the very persons it is designed to help—the lowest producers, and hence the lowest earners.

The bad news is that the party that has failed has also taken down some good ideas, among which is that vast increases in the minimum wage are bad for working people. The Republicans campaigned against the many ballot initiatives raising the minimum wage. Six states approved increases ... None of the increases will be devastating to the economies of these states, since they are still low in real terms. But one can only be aghast at the economic ignorance behind such ballots, which are pushed by unionized, high-wage workers precisely to block low-wage workers from entering into job competition.

These handicaps on minority children are reinforced by the minimum wage and related laws, such as the Davis-Bacon Act. By pricing low-skilled, poorly educated workers out of the market, these laws make getting a first job especially hard if not impossible. For many unfortunate victims of the law, their lives are stifled in ways that cannot be reversed without herculean effort. Tragic coincidence? No. The laws were racially motivated—intended as barriers against black workers aspiring to compete with exclusionist white unions.

Cutting off the lowest rung on the ladder of opportunity may please some members of labor organizations who are much higher on the ladder, because it reduces future competition for better jobs. But to attributing compassion to an increased minimum wage is the opposite of its most obvious effect.

Smith: When measuring the current record of redistribution via government we should be careful to include the effects of regulations as well as the effects of money transfers ... As one final example of modern sophistry concerning regulations that are heralded as protections for the poor, consider legislated minimum wages in the United States. The legislation restricts a worker from the full ability to price himself/herself into the labor market and therefore increases the probability of his/her unemployment. My 18th century arguments against such restriction seem to me as valid as ever ...

Block: ... I was very impressed during the recent debate on the minimum wage, [David] Card and [Alan] Krueger came out with evidence that increasing the minimum wage did not increase unemployment; quite the contrary. In effect, they were claiming that economic law did not work in Pennsylvania and New Jersey. Mainstream economists, who have otherwise pledged themselves to the positivist program, did not say: well, that's what the data show. Not at all. Instead, they were apoplectic. They leapt to their feet and said: something is wrong with this study ... [I]n the end, they were right.

[F]or example, if you increase the minimum wage, the result of that will be that lower-skilled workers will find it more difficult to find employment. And you can test that with empirical evidence ... [T]here are many other government policies, which might actually achieve their goals, the positive, intended consequences of policies, but it ignores the negative, unintended consequences of those policies. So for example, raising the minimum wage, there are some people who benefit ... they get a higher income ... But it ignores the negative, unintended consequences [that] larger numbers of people can't get jobs at all.