No, I’m not going to rehash the problem that raising minimum wage means fewer entry jobs, which over time make for fewer people who even have the (timeliness, work) habits to hold a job, which, over time, impoverishes a society and leads to more welfare. This is a classic “kindness can be cruel” paradox, impenetrable to do gooders who operate on feels.
Being the world’s worst-ever person (but I have to share the trophy with Kate) I’m not even going to rehash the whole “but people can’t live on minimum wage” controversy. It’s true in most states of the Union (but not all) most single people can barely squeak by on minimum wage. It’s also true that you can’t raise a family on it (but then why should minimum wage earners be sole-earners when no one else can afford to be?) though this is somewhat mitigated by earned income credits, or at least it was the year when that was about our income. Being the world’s worst person I’m just going to say “Good, it’s an incentive to move up the ladder.” I’m also going to note that even in the current economy and for struggling millenials, everyone I know who got a minimum wage level job was making more within a year.
I’m going to admit there are cases of people trying to raise a family on minimum wage. There are also cases of people trying to raise a family on nothing. The problem of poverty and/or lack of ambition is not an easy one to solve, and hard cases make bad law. Lousy social programs, too. Minimum wage is one such, having far more horrible than good consequences.
Having a minimum wage at all is a left-hand policy, one that believes individuals, left on their own, will mercilessly exploit other humans beings, who, left on their own, have no recourse but taking it.
Like most such policies, and outside certain places and times, it is daft and more than a little presumptuous. It assumes that one side is needlessly villainous, and the other side is completely helpless, BUT the bureaucrat, without the slightest knowledge of the business of one or the skills of the other has the right information to set “minimum wages.”
Sure men try to make as great a profit as they can on their business, which includes paying employees as little as they can get away with. This means in practicality that they pay as little as they can to ensure a valuable worker isn’t poached by the next guy over.
This means when you start out, unless you have extensive preparation (and sometimes even then. I’ve heard beginning engineers are a net DRAIN) you aren’t worth much and you get paid very little indeed. (I worked for two years for just over $2 an hour.) But, as your skill increases, and particularly your skill at your particular employment, your wage is raised, to prevent you finding someone who will pay you more. Somewhere there, it will find its equilibrium, aka, what you’re worth.
This works for writers, who as contract workers have no minimum wage, for instance, and our advance often gets raised when we hit a new sales milestone, just so we won’t wander off to house B and say “Hey, do you need a novel?”
Yes, again, there are those people who will be exploited. (There are people who ARE helpless and absent a kind-hearted boss will make next to nothing.) But I submit it would be easier to have a more robust earned income supplementation than to distort our economy with A minimum wage law of any kind. (Yeah, I’m a libertarian. A man can seduce me by whispering in my ear “Taxation is theft.” BUT I’m also aware that some evils will always be with us, and that we’re not getting rid of redistribution. Envy and its effects are a monkey-sin. I’d just be happy if government meddling did LESS harm.)
As I’ve said before, economics is a science. Trying to legislate it makes as much sense as legislating the law of gravity or the rate of rain fall. It might make you feel good, but it doesn’t work that way.
The way it works is by seeking other channels, which include being paid “under the table”, forcing other employees to work unpaid hours (trust me, it can be done, particularly in a bad economy) and firing the dead weight, and … hiring illegal labor.
The US doesn’t have an illegal immigration problem. The US has a minimum wage problem.
Given our large and unguarded border (yes, wall, but how much will be built and how much will it stop armed coyotes and drug smugglers) with a country where the cost of living and wages are MUCH lower, paying $10 an hour (let alone $15) means you’ve built an attractive nuisance. This is like having a pool without a fence or any barriers that might attract neighborhood children who can’t swim.
The minimum wage will attract otherwise honest people, cause them to risk their lives, feed illegal businesses and break the law. People will break every law to get here, because at that rate, and living 20 men to an apartment, they can send home enough to keep their wife and children in luxury. You can’t stop men from coming over and trying to do that, particularly when the pay is for illegal work. You just can’t. It’s a biological imperative for a father to take care of his brood.
On top of that there’s the corruption of the employer. Oh, sure, if you’re hiring them with fake social security numbers, you’re paying minimum wage. Probably. Only they’re illegal, and it’s easy to make them work double time. Or you know you don’t have to declare exactly how much they worked and pay benefits. They’re not going to file for taxes. A lot of employers will also hire under the table and pay less than minimum wage.
We also can’t stop the employer doing that, not even if the employer is otherwise an honest man and devoted to the nation. Why not?
Because in many cases we’d be requiring them to kill off their business. I understand many agricultural businesses simply can’t afford to pay minimum wage and stay in business. At any rate, the attractive nuisance law applies again. All it takes is some employers not being too scrupulous and hiring illegal workers. Then the illegal workers allow these employers to lower the price of their product.
The end result is forcing everyone in that field to hire illegal workers. Rumors that Toni Weisskopf drove by a home depot and said “I need to people to write novels” and Larry and I jumped in the back of the truck are somewhat exaggerated, but a similar effect is seen in my field, not from illegal laborers but from academicians moving into writing. When someone starts writing science fiction to pad her university resume, she’ll take an absurdly low advance, now down to something like 3k per novel. This is not her income, or even a decent part of her income, it’s just a satisfaction to “publish and perish.” The ability to pay that low an advances forces down all the advances across the field. It is not the sole explanation for why advances declined from a living wage in the forties and fifties to “money for some pizzas” now, but it is a portion of it. What it did to the field wasn’t pretty in terms of quality either.
What illegal labor does to the fields it takes over is not pretty either. There is a lot less investment into working at very low wages in a foreign land, as a worker who will move around a lot, and who doesn’t care what his record is, than in building a career. There is a reason we joke about things built by “Manuel labor” and their inherent shoddiness.
And the way to get rid of it is not a wall, nor enhanced verification. When you have an attractive nuisance of this magnitude, the neighbors will be attracted, and man is a clever ape. Humans will find a way.
The way to get rid of illegal immigration is to get rid of minimum wage and supplement the income of the truly needy in other ways.
What are the chances of getting rid of this bad idea whose time should never have come, but which has been with us for over a hundred years?
So. About that wall. How much do you think it will cost to build and guard?
Here’s a quick economic quiz about the labor market, with important implications for the $15 an hour minimum wage hysteria that is sweeping the country:True or False? Unskilled employees compete against employers in the labor market for higher wages.
Answer: False
Economic lesson: Despite what we hear from labor unions and the “Fight for $15” crowd, employees compete not against employers for higher wages, butagainst other employees. And it’s also the case that employers compete against other employers for the best employees. It’s like that in every market: buyers (employers) always compete against other buyers (employers), and sellers (employees) always compete against other sellers (employees).
For example, if you’re in the market to buy a home, you’re competing against other home buyers, not against home sellers, to get the best (lowest) price. And the home sellers are competing against other sellers to get the best (highest) price. As a result, the more buyers competing for a fixed number of available homes, the higher the home sales prices; and the more home sellers competing for a fixed number of buyers, the lower the home sales prices,ceteris paribus.
Economic implications of a $15 an hour minimum wage for the labor market: Unskilled workers compete against other workers – especially skilled workers — for a limited number of available jobs at a given point in time. If the minimum wage is increased from $7.25 or $10 to $15 an hour, that will give skilled workers an advantage over unskilled workers, and will take away from unskilled workers the one advantage they currently have to compete against skilled workers – the ability to offer to work for a significantly lower wage than what skilled workers can command. And to the extent that we remove the wage advantage for unskilled workers, we reduce their ability to compete against skilled workers, and reduce employment opportunities for those unskilled workers.
Here’s an example: Suppose that an employer can hire two unskilled workers at $7.25 an hour for a total cost of $14.50 an hour and provide them with on-the-job training, or hire one skilled worker for $20 an hour, provide no training, and get the same hourly output as two unskilled workers. Given that choice, the employer hires two unskilled workers and saves $5.50 an hour in labor costs. Now suppose that the minimum wage goes to $15 an hour, which would require the employer to pay $30 an hour for two unskilled workers. In that case, the employer would switch to hiring one skilled worker at $20 an hour over two unskilled workers, and save $10 an hour in labor costs. Result of a minimum wage hike to $15 an hour? Demand for skilled workers goes up, demand for unskilled workers goes down, and employment opportunities for unskilled workers are reduced.
Economist Walter E. Williams has used the following example to illustrate the competition described above between unskilled and skilled workers by looking at the market for different qualities of beef (see examples here, here, andhere). Suppose that hamburger sells for $4 per pound and sirloin steak sells for $8 per pound. Hamburger is a much lower quality variety of beef compared to sirloin steak, but can attract a significant number of buyers who choose hamburger over the higher quality option for the 50% savings in price. Likewise, many employers may choose lower quality, unskilled workers over higher skilled employees for the significant savings in labor costs.
But now suppose the government imposes a “$8 per pound minimum beef price law.” In that case, most shoppers who buy beef will then purchase more sirloin steak and less hamburger because the lower quality meat has lost it main weapon to successfully compete against higher quality sirloin steak – a significantly lower price that compensates for the lower quality. Result? Hamburger sales will suffer due to the “minimum beef price law” and sirloin steak sales will increase. Just like in the labor market, a $15 an hour minimum wage will remove the most effective weapon that unskilled workers currently have to compete against skilled workers – the ability to work for a lower wage. Result? Employment opportunities for unskilled and limited-experience workers will contract, while employment opportunities for skilled workers will increase.
Bottom Line: Much of the economic confusion about the $15 an hour minimum wage hysteria can be traced to the mistaken assumption that unskilled workers are competing against their employers to get higher and higher wages. That’s absolutely not the case. The economic reality is that unskilled workers compete against other workers to get higher wages, especially skilled workers, and ultimately against investments in labor-saving technologies and automation. If you understand and agree that a “minimum beef price law” would disadvantage hamburger sales and enhance sirloin steak sales, then you should also understand and agree that a $15 an hour minimum wage law would disadvantage unskilled workers and deny many of them the valuable opportunity to get an entry-level job and gain the skills, training, and experience that will put them on the path to a better and more prosperous economic future. At $15 an hour, many unskilled workers simply won’t be able to effectively compete against skilled workers and against automation, and we’ve therefore handicapped America’s most vulnerable workers by taking away from them the most effective strategy they have – the ability to offer to work for a competitive wage that is consistent with their lack of skills.
Update 3: From Walter Williams:
Update 2: Related quote from Milton Friedman:The steak example applies to any mandated minimum price. In the case of minimum wage laws, a mandated minimum lowers the cost of – hence encourages – the indulgence of racial preference in the labor market.Some might object to the validity of my example by saying that people are not the same things as cuts of meat. That is true – just as steel balls are not the same as people. However, although steels balls and people are different, both obey the law of gravity. The independent influence of gravity on a steel ball’s acceleration is 32 feet per second and its influence on a person is exactly the same. Similarly, quantities demanded for cuts of meat are influenced by the law of demand, and so are quantities demanded of a person’s labor service.
Update 1: In the related video below (“The Cruelty of the $15 Minimum Wage“), Don Boudreaux reminds us that “Taking away from workers an important bargaining chip, namely the ability to offer to work at a wage less than the minimum, is the cruelest thing you can do for a lot of these workers.”The minimum wage law is most properly described as a law saying that employers must discriminate against people who have low skills. That’s what the law says. The law says that here’s a man who has a skill that would justify a wage of $5 or $6 per hour (adjusted for today), but you may not employ him, it’s illegal, because if you employ him you must pay him $9 per hour. So what’s the result? To employ him at $9 per hour is to engage in charity. There’s nothing wrong with charity. But most employers are not in the position to engage in that kind of charity. Thus, the consequences of minimum wage laws have been almost wholly bad. We have increased unemployment and increased poverty.