Minimum wage fallacy

Thesis: Raising the minimum wage by government fiat hurts economic growth and hurts most the very individuals it is supposed to help. This is true for any country or economic unit worldwide.

How can this be true, you ask? Obviously if Juan Doe’s employer is forced by the government to pay Juan $6 per hour instead of $3, Juan is better off by $3/hour, right? Think of it this way: If forced government interdiction really works, why not increase it to a minimum of $100 per hour or $500 per hour? Wouldn’t we all be driving a Rolls Royce, and wouldn’t all our money worries be over? In fact, EVERYONE would be rich! No more poverty. Gee that seems simple. Let’s do it.

You can immediately see the fallacy in this argument. Jobs, like any other commodity, are regulated not by some government bureaucrat or elected official but by the law of supply and demand. Example: A business makes X dollars and is able to support its overhead and a payroll of 10 employees at $3 per hour each (plus all the taxes and hidden taxes called “fees” that the business is required to pay). If that business is forced to pay each worker $6 per hour instead of $3 it becomes obvious that the business can now only afford to hire and support five workers instead of 10.

In our example above Juan now gets double the money for doing the same job. Not a bad deal for Juan maybe, but now five of his neighbors won’t have any job at all. Juan, and the hundreds of others who still have a job will now be forced by that same benevolent government to pay higher taxes to support the welfare of all those thrown out of work by the increased minimum wage. Juan’s seeming raise of $3 per hour is now reduced significantly and he wonders if it will be his neck next on the job-cutting block.

Who is likely to be laid off in the above scenario? The least skilled? The least educated? Of course they will be the first to go, because employee productivity per dollar paid out determines whether that company can compete and stay in business at all.

So now you see the real, and deeply evil damage caused by a minimum wage. No matter how well meaning the lawmaker or bureaucrat’s motives are, business operational reality causes those least able to pay the price. Those just entering the job market (students, teens and the like) and those older workers with the least skills and education wind up with no job at all, or with seriously reduced opportunities. The company may want to give a trainee a chance to learn and earn more later but isn’t allowed to pay him/her what they’re worth now so it doesn’t hire at all. A company may wish to hire someone part time, but can’t because of government regulation. Those entry-level jobs go vacant. Someone who could be working, is on food stamps instead.

Yes, I know it is an election year. Yes, I know that the temptation to seem like a “nice guy” and a friend of the working man may seem to get a politician a vote, but if the voter understands that you are hurting him instead of helping, he/she is not likely to help you at the ballot box. Elected officials please do this hurting economy a favor: don’t increase the minimum wage, abolish it altogether. Don’t add yet another layer of government bureaucracy and expense to an already overly burdensome system: make real CUTS instead.

There is a name for the type of government where the means of production (businesses) are privately owned, but are regulated and controlled by the force of government…it is called fascism…but luckily for you the reader, that is the subject of another letter at a later time.

Bruce A. Bateman
Tanapag