The minimum wage: A simple and wrong answer

On July 1, the minimum wage was increased in over 20 states, cities, and counties throughout the U.S.  At the federal level, there is a proposal to more than double the minimum wage to $15/hour. 

It does seem like such a simple solution to low wages: just pass a law raising them.  Indeed, polls have consistently shown that over two thirds of people favor a mandated higher minimum wage. 

But if raising hourly wages merely entails legislation, why be so stingy?  Why not $30/hour, or $300/hour?  Why not legislatively make all those low-end workers into millionaires?  If it can be done by just a congressional vote, why not?

When posed that way, supporters of the minimum wage laugh derisively or say that's ridiculous.  And it is.  Because it's obvious that while some few people can command $300/hour, someone flipping burgers at McDonald's cannot.  And if a law were passed requiring that payment level, the fast food worker wouldn't get the raise; he'd be out of a job.

It may be less obvious, but it is equally true that not everyone can command $15/hour, either.  These are workers with inadequate skill levels or experience.  Many are at their first, entry-level jobs or seeking to enter the workforce for the first time (teenagers); many are from disadvantaged backgrounds.  The value of labor, like the value of any commodity, is determined by the market forces of supply and demand.  That's why there is a range in salaries.  The laws of economics cannot be abrogated by legislative fiat, however well-intentioned. 

It is a common perception that the minimum wage law says: you must pay workers X dollars per hour.  Framed that way, one can understand why it is politically popular and, therefore, why politicians keep proposing it. 

But there's a piece missing.  The law really says: you must pay workers X dollars per hour, or nothing at all.  That is, you must pay workers X dollars per hour or fire them, or don't hire them in the first place.  Many workers at the lower levels of society are indeed fired or not hired because of that.

After an increase in the required minimum wage, there is frequent media coverage of those benefiting from it, interviews with those who've gotten raises.  Uninterviewed — indeed, unseen and unknown — are the workers who got no job because the law has priced them out of the market.

How have we assisted a $7/hour worker fired at $15/hour?  What benefit have we given a worker unhired at $15/hour?  How do we feel about causing their unemployment?

On the business side, big businesses can often absorb the higher costs, so some (loudly) support a higher mandated minimum wage.  This allows them to strut publicly, in consonance with public sentiment, displaying ostensible "good citizenship."  (It also conveniently handicaps their smaller competitors who can't just swallow the costs.)

Small businesses have to pass the costs on to their only source of income, their customers — an especially unattractive option during inflationary times.  Or they must terminate the jobs altogether.

As Raymond Keating, chief economist for the Small Business & Entrepreneurship Council, has written about a higher minimum wage, "[a]n assortment of jobs are simply priced out of the marketplace.  Those positions wind up being terminated, and the tasks either automated, shifted to other workers, or eliminated altogether."  Nationally, hundreds of thousands of jobs fall into these categories.

It is appealing to think we can abolish poverty, raise wages, and make everyone wealthier by just passing laws.  It seems clear and simple.  But one cannot repeal the laws of economics any more than one can repeal the law of gravity.  Attempts to do so are economically wrong, and that wrongness has injurious consequences for some of the most vulnerable in our society. 

Avi Nelson is a Boston-based libertarian/conservative political analyst.  He has been on TV, on the radio, and in print for 49 years.

Image: US Department of Labor.

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