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More Liberal Nonsense on the Minimum Wage

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It’s a shame that libertarians still have to address minimum-wage articles written by liberals. You would think by now that the fallacies of the minimum wage would be so apparent to liberals that they would have abandoned the concept. Alas, such is not the case, as reflected in an article entitled “Raise the Minimum Wage to Raise America” by a person named Holly Skar, published this week on the liberal website commondreams.org

Like other proponents of the minimum wage, Skar thinks that this is one of the keys to economic prosperity. How easy, right? In order to bring prosperity to a nation, all the government has to do is to mandate by law that employers pay a certain minimum to their employees. Voila! Economic prosperity!

But like other proponents of the minimum wage, Skar fails to explain why countries like Cuba and North Korea are still mired in poverty. After all, the minimum wage is not a new idea. Skar herself points out that the U.S. federal minimum wage dates back to the 1930s, when Franklin Roosevelt’s New Deal revolutionized America’s economic system. Moreover, there have been countless books and articles written on the minimum wage since then. Indeed, the Internet is filled with them.

So, it’s not as if the minimum-wage idea is a closely guarded secret. The rulers of North Korea and Cuba and, well, for that matter, Haiti, Nicaragua, Mexico, Ethiopia, and every other country in which people have long suffered a low standard of living have got to know about the idea of a minimum wage. If they don’t, certainly they have people in their governments that do.

So, why are those countries still poor? Wouldn’t they just have to enact a minimum-wage law, thereby abolishing poverty through the force of law? How come Skar doesn’t give us an answer?

In discussing the concept of a minimum wage, an important issue arises: How much should it be? Unfortunately, Skar doesn’t give us a definite answer. She implies that it should be raised from the current $7.25 an hour to around $11 an hour.

What? Why only $11? Does Skar hate the poor? If raising the minimum wage is a key to prosperity, why settle for $11? Why not make it $22? Wouldn’t that double the level of prosperity? How about $52 an hour? Or $102 an hour? Indeed, why not make the minimum wage equal to what the members of Congress make? Think of all the prosperity that would bring.

What would be wrong with making the minimum wage $102 an hour? The answer is obvious but it’s not one that Skar or any other proponent of the minimum wage ever addresses: There would be massive layoffs because most businesses simply could not afford to pay that much money to their workers and stay in business. In fact, there would be many businesses closing down owing to an inability to have enough workers to do the job.

Now, undoubtedly Skar would say, “But those businesses shouldn’t be so mean and selfish. They should go ahead and pay their workers $102 per hour.” In fact, Skar even points to the old Keynesian nonsense we all learn in our economics classes in public (i.e., government) schools and state-supported colleges: that the increased amount of money in employees’ hands will alleviate scarcity of demand by giving workers more money to spend with.

But isn’t it obvious how ridiculous that argument is? Businesses are not non-profit foundations. They’re motivated by profits. That means bringing in more income than they’re paying out in expenditures. If they are required to pay $102 per hour to each worker, most of them will be losing money because the amount of income is less than the amount of money being paid out. It’s not a matter of meanness or selfishness. It’s a matter of economic and financial reality.

Skar also doesn’t address the plight of the individual worker, specifically the worker whose labor is valued in the marketplace at less than the legally established minimum. She just assumes that everyone’s labor has some sort of minimum objective value in the eyes of employers.

But that’s just plain nonsense. Employers will inevitably place some sort of subjective value on a worker to determine whether it makes sense to hire him. Thus, if the minimum wage is set at $102 per hour, the employer will ask himself whether it’s worth it to hire the worker at that rate. Inevitably, at $102 per hour the answer will mean that that most workers will go without jobs. The minimum-wage law makes them unemployed.

But what if the employer places a value of $5 an hour on the person’s labor and the person is willing to work at that wage? The minimum-wage law prohibits the employer from hiring the workers, even though the person is willing to work at that wage. The $102 mandated wage locks the person out of the labor market.

That’s precisely what has happened to countless inner-city black youth. A minimum wage of $7.25 has locked them out of the labor market because employers place a lower subjective value on their labor. While employers would be willing to hire them at, say, $4 an hour, the law prohibits them from doing so.

Of course, Skar would argue that the minimum wage is helping those inner-city black youths by preventing them from being exploited at sub-par wages. She just cannot see how ridiculous that is, given that the minimum wage has relegated the inner-city black youths to a life of unemployment and, possibly drugs, violent crime, or even a life of dependence on government welfare.

At the lower wage, the youths could learn a trade or business. They could learn a work ethic. They could later start their own businesses. Alas, the minimum-wage law, which Skar says helps them, prevents them from getting their foot on the bottom rung of the economic ladder.

In fact, the minimum-wage law also prevents poor people from starting businesses by hiring friends and relatives at extremely low wages, thereby protecting well-established businesses from the threat of competition from start-ups.

Skar has it all wrong. Minimum-wage laws don’t help the poor. They attack the poor. They keep them poor. The best thing that the poor could ever do for themselves is to reject minimum-wage laws and, for that matter, all other aspects of the paternalistic state.

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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.