Three reasons to get rid of minimum wage

February 15, 2012 4:22 PM5 comments

Levine is a sophomore politics major and can be contacted at benjamin.levine@drake.edu

#1 – The Minimum Wage Impedes Job Creation

The minimum wage, without a doubt, impedes on this nation’s ability to create jobs (specifically low productivity jobs). While the policy was undoubtedly created out of benevolence, it remains a fact that it is bad for job creation. Really, that isn’t all that controversial of a statement. “The American Economic Review,” “The Review of Economic Studies,” “The Southern Economic Journal,” “The Journal of Law and Economics” and “The Journal of Human Resources” have all published studies by highly regarded economists (such as George Stigler, Yale Brozen, and Ronald Ehrenberg) on the issue, and that list could continue endlessly.  The only major study to really take issue with this claim was produced by David Card and Alan Krueger, who have been highly criticized for their work and statistical techniques.

However, the extent to which the minimum wage has a negative effect on job creation is much more contested. Nevertheless, the essence of the issue isn’t that difficult to understand. In a simplified manner, wages are the price of an individual’s labor based on the skills they have, how many other laborers have those skills and how many employers want those skills. If an individual is not highly skilled but rather has only rudimentary ones, the price for their labor is low. If an individual has a unique skill, the price for their labor will be high (due to the low supply of that skill and the assumed high demand from employers). The minimum wage is destructive because it artificially sets wages higher than what somebody’s labor might actually be priced; in this case, businesses have to hire less people due to the higher cost of labor.

#2 – The Minimum Wage Violates Right to Contract

In the Supreme Court case Lochner v. New York, the United States Supreme Court ruled that the “general right to make a contract in relation to his business is part of the liberty protected by the Fourteenth Amendment” and that “liberty of contract relating to labor includes both parties to it. The one has as much right to purchase as the other to sell labor.” While this decision was made in regard to the hours an individual can work, the principle should also be applied to wages. The right to contract should be in the hands of the individual. Let’s pretend, for example, that I am a homeless person in desperate need of money. I would gladly do the work of a janitor for five dollars an hour in order to provide myself with a means to eat. I know that at that price a business might be able to hire me. However, in actuality, the business I seek a labor contract with is forced to pay the minimum wage, and because of this they cannot afford to give me a job. In this situation, my right to contract and sell my labor has been infringed upon. But is it not the right of individuals to sell their own labor? Aren’t our skills and labor some of the most private forms of our property?

#3 – The Minimum Wage Is Unfair to Businesses

Although I’m sure most students here won’t care, the minimum wage is unfair to businesses in the same manner that it is unfair to the worker. It infringes on their natural rights to contract, and it also impedes on their abilities to maximize productivity.

As D.W. MacKenzie, a professor at Carroll College and writer for mises.org, puts it: “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.”

Obviously, this also relates back to the first point that the minimum wage impedes on job creation. However, the more important part of this intrusive policy is the infringement on individuals’ right to make a contract. I believe we have lost view in this country of what our natural rights are. Slowly, we are replacing natural rights as social rights — the former can never be taken away whereas the latter can. America needs to return to the philosophy that our government is here to protect our rights, not give and take them away. One step toward restoring this liberty is getting rid of the minimum wage. Hey, it might create some jobs on the side, too.

5 Comments

  • Getting rid of the minimum wage law wouldn’t help the homeless, no one is going to hire a homeless drunkard, even if it’s for $5 an hour when there’s another joe blow who actually has a place to live. Your idea that getting rid of the minimum wage law would help the poorest of Americans is shoddy and criminal. Paying someone a wage that would barely get them food on the table is immoral. I don’t advocate for getting rid of the minimum wage law. My father was in the military for 22 years and the most he can find is a job that pays him $10.00 an hour. If the minimum wage law was rid of, they’d probably hire two of him, and give him less hours and pay him $5.00. How is this helping him live? Sure, it’d help the richest of Americans. But definitely WOULD not help the poor.

    • I didn’t randomly come up with this idea; it has been studied by people who are more well-versed in economics than either of us and the overwhelming evidence is that the minimum wage has hurt the poor. And while I feel for your father and understand your viewpoint, emotions and anecdotal evidence don’t help construct solid policies nor do they help explain economics.

  • Should have figured just from the title of this that it was written by you. Here’s the thing you keep missing. The HUMAN factor. No human can live on $5/hour, especially after taxes and the rising cost of products (and I’m sure you would say that products cost so much because of the increases in minimum wage, but no, products cost as much as they do because companies are greedy). If these CEO’s and higher ups that make 10 fold what their minimum wage employees make had to live on minimum wage, they would freak out. But I’m sure you know nothing of living on minimum wage (and I would never wish it on you or anyone else. Your lovely ideas would do nothing more than widen the gap between the haves and the have nots (there would be no “soon to haves” -there never have been “soon to haves” and never will be “soon to haves”).

    • Oh! That’s what I’m missing: We’re all humans. I forgot about that; glad you pointed it out.

      Now, on to the seriousness, I don’t know anything about living on the minimum wage. However, that doesn’t matter and it is a complete fallacy to distract from sound solutions. I assume you do not require doctors to suffer through diseases before they can assess them. Rather, you ask that they study the subject first. Similarly, I do not need to have been poor to know what policies are destructive. And, fortunately, I have plenty of qualified economists to provide me with the evidence to claim rightly that the minimum wage is destructive. I have studied the subject but have not lived it; the former is important while the latter is irrelevant.

      Admittedly, repealing the minimum wage would not cure all of America’s unemployment problems. Actually, it would only make a small difference. Still, why keep a policy intact if it is wrong?

      Also, your attack on CEOs making high salaries and corporations being greedy sounds like a personal issue you need to sort out but not one to bring into a serious debate. I truly am sorry that they make more money than you (and certainly myself) but being jealous won’t change that. Rich people are just as entitled to their earnings as middle-class and lower-class Americans are and I don’t think whining about them not taking pay cuts is going to solve anything.

      Finally, you’re right: No human can live on $5/hour. However, firstly, when we’re talking about economics I’m not going to get emotionally involved so I’m sorry but the whole bleeding heart liberal argument won’t work for me. Secondly, no human can live on $0/hour, either. Yet $5/hour is certainly better than $0/hour (actually, if my math is correct, it is a whole $5/hour better). Without the minimum wage, many homeless people could make that much more money; while they may not be able to live luxuriously, they’ll probably appreciate the food they could buy with it. And, to continue on this line of thought, humans can’t live freely without being able to express their rights (such as the right to contract) as individuals. What is living if we can’t live freely, after all?

  • Minimum wage is a necessary social tool like: standards boards or child labor laws. It may not be the most productive option but it protects the average citizen from corporate abuse.