Jacob Hornberger of the Future of Freedom Foundation recently wrote a great article for LewRockwell.com on the insidiousness of minimum wage laws, and how they end up harming many of the very people they are supposed to help. While such laws are intended to ensure that people are able to earn some basic, albeit arbitrary, standard of living to provide for themselves or even themselves and their families (ignoring the fact that most minimum wage earners are not heads of households, but rather those seeking to add some supplementary income, students, or teenagers and others new to the labor market looking to develop basic job skills), minimum wage laws have disastrous unintended consequences that end up locking many out of the labor force entirely and forcing them into a life of welfare dependency, or even crime.
This can be seen by simply extending the "logic" of minimum wage laws. Hornberger asks us to consider a case where a bunch of teenagers are hired by an employer, and then the minimum wage is raised to $100 an hour. After all, if it is good to allow people to make more money by raising the minimum wage to $10 and hour or $15 an hour, why limit your benevolence by stopping there? Why not make everyone even richer and better off by raising it to $100 an hour? The answer is that such actions have consequences, that the money with which the employer pays his workers with must come from somewhere and is not limitless, and neither is the value of the employees' work limitless. The employer has expenses of his own and must make his own living. It does not make sense, nor could he likely afford it, to pay $100 an hour for work that he (and his employees, as evidenced by their willingness to enter into an employment contract with him) valued at $8 an hour, or $5 an hour, or whatever the pre-minimum-wage rate was. Assuming that the employer is unable to transfer the artificially inflated costs of the minimum wage to his consumers, which would make all of them worse off, he is forced to lay off his employees and maybe even shut down his business altogether.
Hornberger then looks at the consequences of raising the minimum wage to $100 an hour on the would-be employees:
So what do those teenagers do? Well, they starve to death. Or they steal. Or they push drugs. What other alternative has the $100 minimum law left them? Oh, they can also go on welfare because liberals, always concerned about the plight of the poor, enact a law that taxes the company that laid them off and uses the tax money to provide a welfare dole for the teenagers. Thus, unable to break into the labor market and learn a work ethic because of the $100 minimum-wage law, the teenagers remain on the dole through adulthood and possibly through their entire lives.
You see, the $100 minimum wage has permanently locked them out of the labor market. When libertarians show up and call for the minimum wage to be repealed, liberals hoot them down with such cries as “You hate the poor! You hate welfare! You believe in exploitation!”
But nothing can change the fact that it is the liberals – with their minimum-wage law – who have locked those teenagers out of the labor market, which then causes liberals to initiate welfare-state programs that make such people helpless, dependent wards of the state.
It is true that the results of raising the minimum wage to $10 an hour or $15 an hour would not be as disastrous as raising it to $100 an hour, but the economic principles are the same. Maybe not as many people would be unemployable, or not as many workers will be laid off, or not as many entrepreneurs will be forced out of business because they can't afford to pay the new minimum wage (resulting in even more job losses), but the economic and personal harm is undeniable. The difference is just a matter of degree.
Since populations such as the poor and minorities generally tend to have fewer job skills and be more likely to try to compete for minimum wage jobs, they are hurt the most by the "compassion" of those who push and support minimum wage laws. As economics professor and syndicated columnist Walter Williams noted in his recent column, "The Cruelty of the Minimum Wage," cited in Hornberger's article, explains:
One might ask why teen unemployment, particularly that among black teens, is so much higher than adult unemployment. The answer is simple. One effect of a minimum wage law is that of discrimination against the employment of less-preferred workers. Within the category of less-preferred workers are those with low skills. Teens are disproportionately represented among such workers and are therefore more adversely affected by minimum wages. Black teens are disproportionately represented among teens with low skills and therefore share a greater burden of minimum wages.
One of the more insidious effects of minimum wages is that it lowers the cost of racial discrimination; in fact, minimum wage laws are one of the most effective tools in the arsenals of racists everywhere.
Try as they might, politicians cannot legislate prosperity. Passing a law declaring that wealth be created, or increased, does not make it so, any more than passing a law mandating world peace would bring everlasting harmony and happiness. The laws of wanna-be do-gooders, however well-intentioned, cannot trump the laws of economics. Lest this sound cold-hearted, consider all the effects of implementing or raising a minimum wage.
It may be easier to see those that are not laid off that end up with more take-home pay and declare the minimum wage compassionate than to acknowledge the unseen people who are laid off, or never hired in the first place, those who are denied the pride and sense of accomplishment that earning an honest wage and making one's way up the economic ladder impart, and who are instead relegated to a life of dependency on the welfare rolls. (This brings to mind 19th century French economist, statesman, and author Frederic Bastiat's classic essay, "That Which Is Seen, and That Which Is Not Seen.") To recognize these unseen effects is to see that not only do minimum wage laws violate the freedom of contract of both employer and job seeker, they limit one's economic opportunities, condemning many to a life of poverty and dependence, and castrate one's spirit and work ethic. How's that for compassion?