It was unsurprising but disappointing to encounter an article titled “Raising Minimum Wage: An Issue of Maximum Importance” in the March 6, 2014 edition of the University of St. Thomas student newspaper, The Summa. Given the target audience, one could hazard a guess that few university students could find fault with the author’s trite and threadbare conclusions, especially such gems as “the proposed bill is certainly popular,” and “we have an alarmingly low minimum wage,” and “change is needed.”
Sadly, there is no mention of the imposition created for employers who would be required to pay more for those of minimal skill. No mention of the cost imposed on businesses. But the most glaring example of cluelessness comes at the end of the penultimate paragraph, where the author states, mind-bogglingly; “[N]obody really knows exactly how things will go if the proposed Fair Minimum Wage Act passes.”
So why do it? Given that the author’s entire rationale for this particular effort at raising the minimum wage has thus been laid waste, let us instead examine the topic from the opposite pole: complete elimination of the minimum wage.
Consider, if you will, the effects of implementing a minimum wage in the first place. The immediate effect is negative for all involved. First, employers who are in the business of generating a profit see those profits cut. Keep in mind that profits are not a necessary evil, nor are they somehow an unjust distribution of the financial rewards of doing business. Profit is the prime motivating force for business in America. Profit is what motivates someone to invest their resources into a new company that they started in their garage in an effort to grow. Without that profit, there is no reason to engage in building new companies, producing goods, or hiring and paying workers. Take away profit, take away jobs.
Secondly, the minimum wage sets an arbitrary price floor for workers. Not only do employers have to pay their workers a fixed sum – regardless of value added to the company’s bottom line – but the incentive to hire more people to grow the business and pay them better wages is diminished. Look at it like this; if an owner operates his company correctly, he tries to minimize cost to the greatest degree possible. The greatest driver of that cost is more often than not the overhead and burden of hiring employees. With an artificially imposed minimum wage, there is a fixed cost to that worker. The employer can calculate exactly how much a worker costs and determines what the profit margin will be. If the margin is too thin, the employer cuts jobs or stops hiring.
If, on the other hand, the free market is allowed to set the price of labor, not only could profitability be maximized, but unemployment would be lowered and illegal immigration would be greatly curtailed. For example, if an owner operates a burger stand and hires someone to do the job for $1.00 an hour, he would maximize his profits. But if the burger stand across the street offers $1.25 an hour, the first owner will have to raise his employee’s wages in order to retain the best workers. This continues back and forth would continue until the real wage–the wage level at which the employer can generate enough profit while still retaining his best, most productive employees–is reached. Along with this comes the added benefits that entice workers to remain at a company: healthcare coverage and other perks. These occur naturally within the framework of the free market. The minimum wage, by contrast, artificially sets the price, and thus discourages that same competition, innovation, and growth.
In addition, elimination of the minimum wage would drive a huge boom in entrepreneurship and start-up businesses, as people everywhere would begin hiring workers to perform tasks, increasing tax revenue for local and federal government, and reducing unemployment dramatically. Poverty and homelessness would also decline, as those with minimally profitable skills would be more able to find work commensurate with their abilities. This could readily lead to the stabilization and solvency of entitlement programs, a sharp increase in the GDP, and lower deficits through increased tax revenues and economic activity.
In short, eliminating the minimum wage would do much to spark a renewal in the American economy and usher in a new age of growth, opportunity and prosperity. Don’t raise the minimum wage. Eliminate it.