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The Minimum Wage Hurts the Poor

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All too many liberals continue to extol the virtues of the minimum wage despite the fact that it hurts the very people liberals want to help — the poor. A recent example of this phenomenon occurred last week in a New York Times op-ed by Adam Cohen. Harkening back to Franklin Roosevelt’s New Deal, Cohen used the 75th anniversary of the National Industrial Recovery Act, a law cartelizing American industry that fortunately was declared unconstitutional by the Supreme Court, to sing the praises of the federal minimum wage.

Here is the critical sentence in Cohen’s op-ed: “The minimum wage can play a vital role in lifting hard-working families above the poverty line.”

Oh?

Actually, it’s the exact opposite. The minimum wage can play a vital role in keeping hard-working families below the poverty line by preventing them from working.

Let’s see how.

Cohen points out that the federal minimum wage in 1933 was 30 cents an hour. Today, he observes it is set at $7.25 per hour. He states that over the years “advocates for low-income workers have had a hard time keeping the minimum wage at a reasonable level and passing other laws necessary to fulfill the original goal: ensuring that people who work hard can achieve a reasonable standard of living.”

Unfortunately, Cohen fails to point out what his ideal minimum wage would be. Let’s give him the benefit of the doubt and say that he would be generous to the hardworking poor. Let’s say that Cohen would support a minimum wage of, say, $100 per hour.

Now, what poor person would oppose that? Certainly Cohen wouldn’t oppose it, given his concern for the working poor.

However, there would be one big problem with setting the minimum wage at $100 per hour. It would doom many of the hard-working poor to unemployment.

The problem becomes obvious to most people when we set the minimum wage at $100 per hour. It’s just not worth it to most employers. Value is subjective. While employers might find it worth it to purchase workers’ labor at, say, $10 an hour, they won’t find it worth it to purchase it at, say, $100 an hour.

In fact, most people would easily recognize that businesses simply could not afford to pay their workers $100 an hour and would quickly go out of business if they did so. Faced with a law that required them to pay $100 per hour, most businesses would not hire new people and would also let some current employees go.

Thus, it is easy to see that every worker whose labor is valued in the marketplace at less than $100 per hour will be precluded from getting a job. Every time he applies for a job, the employer will say, “Sorry, I just cannot afford to pay you $100 per hour, which the law mandates. You might be the best worker in the world but your labor is not worth $100 an hour to me. I’d be willing to pay you $10 an hour but unfortunately the law won’t let me.”

What if the prospective employee says, “I need the job. I’ve got a family to support. I’ll work for $10 an hour”? The employer will refuse because he’s facing sizable damages if he’s caught breaking the law.

Therefore, the $100 per hour minimum-wage law would doom a vast portion of the working populace to unemployment. How would they survive? You’ve got it — government welfare, unemployment compensation, food stamps, public housing, public schooling, etc. That would keep the poor alive — and dependent on the government.

Cohen might respond “But $100 is too high. How about a reasonable compromise — to, say, $10 per hour? Surely a small increase like that wouldn’t cause unemployment, like $100 an hour would.”

That would certainly be true if everyone’s labor is valued in the marketplace at $10 an hour. Employers would still find it in their interests to hire such workers. But it would not hold true for every worker whose labor is valued by employers at less than $10 per hour. The $10 per hour mandated minimum wage will doom those workers to unemployment, poverty, welfare, and governmental dependency.

Thus, if one wants to help the working poor the best thing he can do is to repeal minimum-wage laws to ensure that they all can work.

How can workers be assured of being paid the highest possible rate? Through the virtues of competition. They look around and see what other businesses are paying workers, and if they are paying more, employees ask for a raise or leave for better pay. Therefore, it is in the interests of the working poor to have a marketplace where there are multitudes of businesses opening up, successfully serving consumers, and competing for workers.

After all, if the minimum wage law is what requires employers to pay workers a minimum rate of pay, why is that many employers pay more than the minimum wage? Not surprisingly, it’s a question that Cohen does not address.

Cohen’s piece is a classic example of how good intentions are irrelevant when it comes to public policy. Like other liberals, Cohen wants to help the poor. The problem is that the economic interventionism he endorses actually hurts the very people he wants to help.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.