By Indri Schaelicke | United States

When it comes to the minimum wage, few people truly understand the complexity of the mechanism. Many believe that raising it is a quick fix to poverty. However, minimum wage hikes only increase the cost of living, hurting the economy for both the rich and the poor.

In 2014, Seattle signed a law that would increase the minimum wage there each year. By 2021, the wage will reach $15 per hour. While many support this law, libertarians are scratching their heads. Wages are an input of production, meaning that when a business produces a good or provides a service, part of its success is due to the employees and their necessary wages. When the cost of an input of production increases, the final price of the good or service must also increase. If all wages in a city increase, then all prices of goods and services will increase. Things will be no more affordable than they were before the minimum wage hike.

Minimum wage increases also lead to significant job losses. As mentioned before, when wages increase, the final price of a good or service must also. In order to combat having to charge high prices for their products, businesses can fire employees and move to automated systems that make use of the latest technology and do not require much human input. McDonald’s Restaurants recently started using automated kiosks in some stores to cut down on the amount of staff. This investment insulates McDonald’s from the fluctuations of the labor market and from the effects of minimum wage increases.

Kiosks like these have appeared in McDonald’s across the US as the fast food chain seeks to insulate itself from labor market fluctuations and increases in the minimum wage. Image Source

The minimum wage hurts those whose skills are worth less than a mandated minimum. As they are not worth, say, $15 per hour, employers cannot hire them at all. Someone whose typing skills only earn them $5 per hour is unable to find work at all. But, if the minimum wage ends, he or she will be able to find an employer willing to hire them. While $5 per hour is nowhere near the wage required to live a comfortable life, it is a stepping stone to higher paying jobs in the future. The person given in the previous example can work at improving their typing skills until they find employers willing to pay incrementally more. In this way, people are able to climb the socio-economic hierarchy.

Beyond just the minimum wage’s harm to the economy, it is also immoral, because it limits what terms two consenting adults can voluntarily negotiate a contract for. The state should not have any say in how a person values their labor. These terms are between employer and employee.

Abolishing the minimum wage will open up job possibilities for those that need them most. It is one step closer to a world where the state does not control every aspect of life. Individual sovereignty begins with being able to decide one’s worth.

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Featured Image Source.