Last semester, work-study students at Seton Hill University (SHU) returned from Christmas break to find that something terribly exciting had happened to our work schedules and paychecks. Suddenly we’d all be working an hour and a half less a week, but still earning the same pay for the semester.
Quite aside from the fact that this is a dubious lesson for college kids about to enter the working world – work less, earn the same – this is our own example of how minimum wage laws always fail to accomplish what they’re supposed to do. Actually, minimum wage laws have always ended up inflating the problems that they’re supposed to solve.
The minimum wage first became an issue during the Great Depression, when Roosevelt and the Congress came to the strange conclusion that the best way to improve the economy was to pile extra costs on already-struggling businesses. A host of New Deal policies made it so that for the first time in history, employers had to pay significantly more for labor than it was actually worth. New Deal policies forced businesses to pay more to a worker than that worker would actually produce.
By Megan Ritter,
Senior Staff Writer
Last semester, work-study students at Seton Hill University (SHU) returned from Christmas break to find that something terribly exciting had happened to our work schedules and paychecks. Suddenly we’d all be working an hour and a half less a week, but still earning the same pay for the semester.
Quite aside from the fact that this is a dubious lesson for college kids about to enter the working world – work less, earn the same – this is our own example of how minimum wage laws always fail to accomplish what they’re supposed to do. Actually, minimum wage laws have always ended up inflating the problems that they’re supposed to solve.
The minimum wage first became an issue during the Great Depression, when Roosevelt and the Congress came to the strange conclusion that the best way to improve the economy was to pile extra costs on already-struggling businesses. A host of New Deal policies made it so that for the first time in history, employers had to pay significantly more for labor than it was actually worth. New Deal policies forced businesses to pay more to a worker than that worker would actually produce.
It doesn’t take a business major to figure out that paying someone for more work than they are actually doing is not a recipe for economic success. The non-profit, libertarian Cato Institute, which gets its kicks out of researching such things, has concluded that the Depression would not have been nearly so long or deep had the federal government climbed off the backs of business owners and let them run their companies in the best way they knew how.
The destructive effects that minimum wage laws can have on businesses and the people who work for them are not limited to the Great Depression years. In fact, every time in U.S. history that the minimum wage has been hiked, we’ve seen a corresponding rise in the unemployment rate.
You see, like all the rest of us, businesses have budgets that they don’t really have a choice but to follow. (It’s interesting that the federal government, which forces minimum wage laws on businesses, is the only entity in the United States which doesn’t have to follow a budget.) When the minimum wage is raised, we may say that it’s “only a dollar,” but raising a wage of around $5 by an extra dollar is a hike of 20 percent. A dollar doesn’t sound like much, but 20 percent is a lot of money when you have a budget to meet.
So when the cost of labor goes up, something in a company’s budget has to go. What has to go, every single time, are extra workers – and it is usually the low-skill workers who produce the least for the company. These people, incidentally, are those who can least afford to be forced out of a job. We pass minimum wage laws because they allow us to pat ourselves on the back and say self-righteously that we are doing something to “end poverty.” Yes, this is a noble goal and one we should work for – but maybe in not quite this way. I see a moral problem with going to anyone and saying, “The person who works beside you will now earn an extra dollar an hour, but you no longer have any job at all.”
The other argument in favor of minimum wage – that always comes in a package deal with the flawed argument that the minimum wage will eliminate poverty – is that we have to have minimum wage laws because business owners are selfish and greedy people who, unless forced, will never pay their workers enough. In fact, it is precisely because of this potential for selfishness that we can force an employer to pay a worker fairly.
By fairly, I mean “what the worker is worth,” not, “what the worker ought to earn.” We’ve already discussed how paying a laborer more than his or her work is worth is a recipe for a failed business. Can you think of any business in the world that isn’t out to hire those people who will work the best and produce the most? In fact, can you think of any business that just doesn’t need to hire any workers at all? The truth is that, whether or not they are selfish jerks out to keep the working class pinned down, business owners are still forced to pay wages high enough that people will actually work for them.
The proof is in the numbers: all newly-hired minimum wage workers see their wages rise by an average of 30 percent in their first year of employment alone. Why? Because in that year they acquire skills that employers want from their workers and (this is important) skills that employers are willing to pay for.
It’s certain that we have a responsibility to deal with poverty in America – but it’s equally certain that minimum wage laws aren’t going to do it. We haven’t tried it in seventy years, but maybe, just maybe, we should get the government out of the way for a few years and see if the needs of employers can match the needs of workers.
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