The minimum wage law does not require that a single solitary employee receive a boost in salary. Rather, it mandates that if such a person is hired, he or she must be paid at the level stipulated by law. A minimum wage of $15 per hour, which the United States is considering, need not lift anyone’s wage to that level. A person with productivity of $10 per hour, say, might not be hired at all, since employing people who lose you $5 per hour is an invitation to bankruptcy.
The minimum wage is not an employment law; it’s an unemployment law. It decrees who will not be hired — namely, anyone whose productivity is below the designated wage. It doesn’t create a floor, raising wages. It’s a hurdle that potential employees must clear in order to get a job. And the higher it is, the harder it is to clear.
If the minimum wage really were a rising floor, boosting everyone’s compensation as it rose in height, why stop at $15? Why not make it $150, or $1,500? We would all be rich! And not just us. We could abolish foreign aid. Instead of sending money or CARE packages to poor countries, we could just advise them to institute a minimum wage or, if they already have one, raise it to the skies.
The Biden administration proposes to raise the minimum wage in steps, first from its present US$7.25 ($9.25) to $9.50 and then only gradually to $15, reaching that value only four years out. But why the delay? If it’s such a great idea, why not do it in one fell swoop?
Timing is everything, a point that many studies of the employment effects of minimum wages neglect. When the minimum wage rose from 40 cents to 75 cents in 1949, did any manual elevator operators lose their jobs the very next day, week or even month? No, not a one of them. It takes more time than that to substitute automatic elevators for manually operated ones. But within the space of a year or two, every last one of those jobs was eliminated. If researchers don’t wait long enough, they miss the joblessness effects of minimum wage hikes.
According to a study conducted by the U.S. Congressional Budget Office, 1.4 million jobs would be lost were the minimum wage to be raised to the $15 demanded by all politically correct folk. But no jobs — none at all, zero — will be lost one minute after this boost is enacted. Every day thereafter, of course, more and more unskilled workers would become unemployed. Presumably, at some point, the number of disemployed will reach exactly 1.4 million people. But, eventually, every employee with hourly productivity less than the new employment hurdle of $15 would either become unemployed or exit the labour force (contributing to the “discouraged worker effect”). The CBO estimate doesn’t specify a time frame, so is not that useful as a prediction. But it should force many minimum wage advocates to sit up and take notice.
You might think that the European countries that rank so high in the pantheon of admirably left places not only would have minimum wage laws on the books but would already have pegged them so high as to have long since left $15 per hour in the dust. But think again. Iceland, Norway, Sweden, Finland, Denmark, Austria, Germany, Italy and Switzerland have no government-mandated minimum wage laws at all. These are hardly poverty-stricken countries. Sen. Bernie Sanders idealizes some of them. Yet no U.S. progressive dares oppose this pernicious, job-destroying legislation.
If the minimum wage law preys upon the poor, the unskilled, the “last, least and lost” amongst us, why do we have it at all? One reason may be the economic illiteracy of large parts of the electorate. Another is that the law has influential beneficiaries: in particular, organized labour, which is always in competition with the less skilled. When a union demands a wage increase from $30 to $40 per hour, the first thought of the employer is to substitute away from this newly more expensive factor of production into a cheaper one: the unskilled. How to nip this in the bud? Make the unskilled unemployable by pricing them out of the labour market. And how do you do that? One guess: yes, the minimum wage law.
Reprinted with the author’s permission.