Blog Post

AEIdeas

Based on a minimum wage debate I participated in recently at Northwood University, here are ten reasons that I support market-determined wages over government-mandated minimum wages.

1. Government-mandated minimum wages are always arbitrary and almost never based on any sound economic/cost-benefit analysis. Why $10.10 an hour (Obama said “ten-ten is easy to remember”) and not $9.10 or $11.10 an hour? Why $15 an hour and not $14 or $16 an hour or $25 an hour? In contrast, market-determined wages reflect supply and demand conditions that are specific to local market conditions and vary widely by geographic region and by industry.

2. A uniform federal minimum wage may be sub-optimal for many states, and uniform state minimum wages may be sub-optimal for many cities. A one-size-fits-all approach to a single, uniform federal minimum wage is really a “one-size-fits-none approach.”

3. Minimum wage laws require costly taxpayer-funded monitoring and enforcement mechanisms, whereas market wages don’t require enforcement.

4. Minimum wage laws discriminate against unskilled workers in favor of skilled workers, and the greatest amount of discrimination takes place against minority groups, like blacks. Milton Friedman called the minimum wage the most anti-black law in America.

5. Adjustments to total compensation following minimum wage hikes will disadvantage workers in the form of reduced hours, reduced fringe benefits, and reduced on-the-job training, and a lower quality work environment.

6. Many unskilled workers will be faced with reduced employment opportunities because of minimum wage laws and will be denied valuable on-the-job training, and the opportunity to acquire experience and skills.

7. Minimum wage laws prevent mutually advantageous, voluntary labor agreements to take place at whatever wage is mutually agreeable, which sometimes could be as low as $0.00 an hour for an unpaid internship that provided valuable on-the-job training and work experience.

8. To the extent that higher minimum wages result in lower profits or higher prices for firms that employ workers at the minimum wage, that’s a form of legal plunder by unskilled workers from employers and/or consumers which I find objectionable.

9. Market wages are efficient and market-clearing, whereas government mandated wages are inefficient and create distortions in the labor markets that prevent market-clearing and lead to surpluses.

10. If you trust government officials and politicians to set a minimum wage for unskilled workers, you should logically trust those same bureaucrats and politicians to set all prices, wages, and interest rates in the economy. Inevitable result: Soviet-style central planning, command-and-control, and economic chaos like in Cuba, North Korea, and Venezuela. If you agree that economy-wide central planning and price controls would be undesirable, then I think you should also agree that the minimum wage law, as an arbitrary, artificial, government-mandated price control is undesirable. There are better ways to help unskilled workers than a distortionary government price control.