Guest Column

What’s so bad about a minimum wage?

July 4, 2014
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From Seattle to Boston, governments are raising minimum wages. The only debate seems to be how high it should go.

Polls show a majority of Americans favor such increases. Who would not want any worker, particularly a low income worker, to have a higher wage?

The main objective for every economy is to improve workers’ living standards by raising wages. It seems counterintuitive to suggest mandating minimum wages could make workers poorer, but this is precisely what happens.

In a free country, the value of the goods and services a worker produces determines the worker’s wage. That value depends on how productive or efficient the worker is. The only way to increase wages is to increase productivity.

Government-imposed wages are inconsistent with freedom. In a free country, wages are determined by the laws of economics. Employers will pay workers based on the value of their contribution. Workers determine if their time is worth the pay offered. Minimum wage laws not only limit economic freedom, they deceive people by promoting a myth that government determines wages, rather than the value of a worker’s contribution.

Extensive research from Canada’s Frasier Institute shows the more a nation restricts its citizens’ economic freedom, the more it reduces workers’ incomes, increases poverty and increases inequality. Totalitarian governments reject the idea of individual freedom. The limitations they place on individual freedom limits workers’ productivity, reducing their wages and living standards.

As recently as 2001, the Institute ranked the U.S. as one of the top two countries in the world in terms of economic freedom. Policy changes have eroded such freedom, dropping the U.S. rank from 2 to 19. This erosion has reduced workers’ wages by undermining America’s productivity performance.

Minimum wage laws not only reduce the living standard of the nation’s citizens, they are particularly harmful to the most vulnerable workers — those with special needs, limited skills and experience, and those attempting to reform their lives.

Individuals with special needs, whose work contribution might amount to less than the minimum wage, are often the first to be priced out of a job. In a cruel twist of fate, these most vulnerable workers are denied the opportunity to become productive citizens.

When younger or less-skilled workers are priced out of the job market, it prevents them from improving the skills and experience necessary for better paying jobs, undermining their financial condition. The same is true for individuals with a troubled past. They might have to accept a low wage initially to prove they have changed. If the wage is below a mandated minimum, individuals are denied the chance to enter the workforce.

It’s true a minimum wage can temporarily help some workers. When forced to pay a wage that exceeds the value of some workers’ contributions, employers will either go out of business or invest in technology and increase the pay of remaining workers. Workers retaining their jobs will be those with higher skills and a better work ethic. These are workers whose traits would soon have led them to receive higher wages without legislation.

Hence, a minimum wage increases inequality by discriminating against society’s most vulnerable workers. Those directly affected go from being productive citizens contributing to a nation’s wealth to being a burden.

So-called “progressive” economists, such as Sidney Webb, Royal Meeker and John R. Commons, who laid the foundation for the first minimum wage, did not pretend it would help the poor. They wanted a minimum wage to price them out of the job market and eliminate them as a class.

None of today’s “progressive” thinkers offers such offensive reasoning for a government-imposed minimum wage. Instead of arguing how it will impoverish and eliminate the poor, proponents suggest it will increase their wellbeing. The arguments have changed dramatically. The economics have not.

Among other things, restoring individual freedom means eliminating government edicts dictating what workers can earn.

Robert Genetski is an economist who blogs at classicalprinciples.com.

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