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Hornberger's Blog is a daily libertarian blog written by Jacob G. Hornberger, founder and president of FFF.
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Homelessness and the Minimum Wage

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Like most everyone else, I periodically encounter people at some busy intersection with a cardboard sign saying something like, “Homeless with three children. Please help.” My immediate reaction is to feel sympathy, which is then followed by the thought that they should be working rather than standing at that intersection asking for money. But then I remind myself that statist intervention like the minimum wage oftentimes prevents people at the bottom of the economic ladder from getting a job.

The minimum wage is an artificially established minimum amount that employers are required to pay their employees. Let’s say, hypothetically, that the minimum wage is $10 per hour. That means that the law prohibits an employer from paying an employee less than $10 per hour.

What if a person agrees to work for less than $10 per hour? It doesn’t matter. The law does not provide for an exception in that case. Even if the person is ready and willing to work for less than $10 per hour, the law says no.

What happens if an employer gets caught paying less than the minimum wage? The government imposes an extremely large fine on the employer. I haven’t checked the amount of the fine lately but many years ago it was equal to triple the amount of the wages that were paid to the employee. Obviously, not very many employers are going to take that chance, especially since it might be the employee who ends up turning them in.

Notice something important here: The law does not require employers to hire people at $10 an hour. It simply says that if an employer does hire someone, he must pay the employee at least $10 an hour.

Why is that important? Because value is always going to be subjective, including the value of a person’s work. Inevitably there will be people whose labor is valued at less than the state-established minimum. For that matter, inevitably there will be people whose labor is valued at more than the state-established minimum, which is why many businesses pay their employees more than the minimum wage.

What happens to those people whose labor is valued in the marketplace at less than the state-established minimum wage? Do they get hired at the minimum wage? No, because, again, the law does not require employers to hire them. It only requires employers to pay employees the minimum wage if they are in fact hired. If they’re not hired, they obviously get nothing.

Thus, the effect of the minimum-wage law is to lock out of the labor market all those people whose labor is subjectively valued by employers at less than the artificially established minimum.

There is another factor to consider here. The minimum-wage law prevents people at the bottom of the economic ladder from opening new businesses in which they hire their friends and neighbors at wages that are below the legally established minimum. Thus, the effect of the minimum-wage law is to protect well-established businesses, which have plenty of money to pay their employees the minimum wage, from the competition of startup companies in which people are willing to work for less than the artificially established minimum.

Would people be willing to work for less than the minimum wage? Of course they would, especially because it helps them to learn a skill or a business and a work ethic. It gets their foot in the door. They learn the trade, and then at some point they ask for a raise or, alternatively, leave to start up their own business. The minimum-wage law prevents all too many of them from getting that foot into the door, relegating many of them to welfare or to begging on some busy street intersection.

Thus, the best thing that could ever be done to help the homeless and the poor is to repeal the minimum wage.

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.