I wrote this as a speech late at night (or early in the morning?) before a practice tournament for the NCFCA.
Unemployment for the last four years is the highest it has been for decades. Many people are out of work, and have given up all hope of finding a job. This drastic situation could very well require unconventional solutions. Most conservatives believe that the free market can provide the best economic outcome, and that government intervention only causes problems. But when you come to the issue of minimum wage, they have a gap in their philosophy, and support government decrees on the price of labor.
In this speech I would like to challenge the assumption that minimum wage laws are good, and instead show how they not only harm the productive members of society, but also the poor and low-skilled as well. In addition, I hope to elucidate to you how the free market can provide a solution that is superior to the current system.
Minimum wage hurts productive individuals. Proponents of minimum wage always claim that it helps the poor and low skilled worker, but for this to happen at all, it must be done at the expense of one of three parties. The employer, the consumer, or the more productive workers. Typically there may be some of each, but the burden is usually shifted to the latter. If a business employs all of it’s workers at minimum wage (which for the sake of clarity is federally set at $7.75, but varies in many states) [http://www.dol.gov/whd/minwage/america.htm], there is a high probability that some of the workers’ productivity is below minimum wage, while others’ are above. What is done here, is that workers’ wages are equalized, and the less productive get paid more than their value, while the more productive receive less. This is a form of corporate socialism, where the more productive subsidize the less so. Minimum wage also hurts productive people because they have to pay unemployment benefits to those who are put out of work as a result of minimum wage.
But while minimum wage does hurt people who’s productivity is above $7.75, it also harms the very people it was meant to help. The first, and most obvious problem, is that of unemployment. If a person’s productivity rate is at $5 an hour, the employer will lose more than $110 per week by hiring that individual, which makes it financially unwise to hire these workers. This is reflected in part by the 8.6% unemployment rate in America. Indeed, nearly one hundred studies from the past fifty years have shown that minimum wage causes a higher rate of unemployment. One of the problems that is caused by this unemployment is that for a worker to raise their productivity to above minimum wage they typically need to have training and workplace experience. And by minimum wage preventing their employment it is very, very difficult for them to improve their productivity, and therefore get a job.
Having these people unemployed obviously is a burden to our nation. If someone has a productivity of $6 an hour, they can’t get a job because their productivity is below minimum wage, and they remain jobless. As a result we pay unemployment benefits of say $160 a week. If you add this cost to the money that isn’t made because of their being jobless, society has a loss of $400 per week, or $20,000 a year for each jobless individual. If you multiply that by even just half of the unemployed people in America, we are literally losing hundreds of billions of dollars in wealth creation every year. But beyond material damage, we also deprive these workers of the independence & self-respect of having a job, and further degrade the moral fabric of society.
In the book Economics in One Lesson, by Henry Hazlitt, he says that “You cannot make a man worth a given amount by making it illegal for anyone to offer him anything less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low wage you substitute unemployment. You do harm all around, with no comparable compensation.”
Clearly, minimum wage laws cause harm to the poor, and all of society.
But thankfully there is an answer to these problems. The free market can solve the problem of wages. In this speech there is one thing that I haven’t addressed. That is the argument that without a minimum wage, the corporations would ruthlessly exploit their workers, and pay them as little as possible. But if this were the case, you wouldn’t have people being payed at ten, or fifteen dollars an hour, as many currently are. In a free market, wages tend to come up to marginally below productivity. The main cause of this is competition.
Every business wants to make as much money as they can, and as a result in a worst-case-scenario you would have the capitalist pigs paying as little as they possibly could, while still retaining their employees. But the thing is, there isn’t just one capitalist pig. As a result, each employer in an area wants to exploit as many workers as much as they can, so they offer the workers slightly more than their competition. And each employer keeps doing this, until the wage comes up to just under the worker’s productivity.
Let’s say however, that there is an instance where there isn’t competition, perhaps in the mining industry. This actually happened often around the turn of the century. In many cases people were payed barely enough to survive on. This is a situation where you would think perhaps that a minimum wage would be needed, but there is a way to solve the problem. It is known as striking. If all, or most of the workers in the industry threaten to quit unless they receive better wages or working conditions, the employer will be obligated to grant them their wish. After all, for him to hire and train numerous new workers would be costly and time consuming. It is of benefit to him to oblige them, rather than hire new people. And even if it was economically beneficial to him to hire new workers, as he has a monopoly on employment in the area, there are not enough new workers to cover all of the openings.
But there are controversies about unions as of late. I think though, that we can all agree that if the unions are simply using the power to collectively strike there isn’t a problem. The problem comes if they resort to violence, or if the government interferes. What’s almost comical, and very typical of government is that they have been on both sides of the issue. Currently in many states you must by law be a union member to be able to get certain types of jobs. But during the industrial revolution there numerous examples of government siding with the corporations and mine owners. In 1886 there was a strike all across Milwaukee Wisconsin demanding an 8 hour work day, instead of the 10-16 currently in place. But governor Jeremiah Rusk called out the national guard and quelled the protests, which resulted in the guard firing on the protesters, and leaving several dead. As a result, Milwaukee went back to work without any improvement for the workers.
Government ought only to become involved in cases where there is violence. Something that was very minimal in this case until the State initiated it.
But if the free market is actually allowed to function these problems are not present. Strikes can be costly and cumbersome for employers, and so in the majority of cases the employer and workers can bargain with each other and come to an agreement without even the need for a strike.
Conservative claim to stand behind the free market, but when it comes to issues such as minimum wage, they often have discrepancies in their philosophy. But this need not be. A thorough study of the Austrian School of free market economics manifests the fact that we can indeed have a complete defense of the market, as the best and most humanitarian economic system. Government interference in the market only serves to distort an otherwise optimal system.
As we have seen, minimum wage laws harm not only the productive, but also the poor. Remember, as Henry Hazlitt said “Real wages come out of production, not out of government decrees.” If we wish to get unemployment under control and restore the American economy to it’s former greatness, we can take a confident first step by abolishing the minimum wage, and instead allowing the market to bring about a superior system of wages.