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Is this really concern?

Published 11:00pm Wednesday, September 4, 2013

Should the minimum wage be substantially raised? Employees and protestors staged a strike last week against McDonald’s and other restaurants in support of a $15/hour minimum wage for fast food workers. The city of Seattle is also considering a $15/hour minimum wage, while the liberal magazine The Nation recently challenged Wal-Mart to pay their employees at least $12/hour.

Normally economists emphasize the economic effects of minimum wages, like higher unemployment and higher costs. We cover this in our intro economics courses. But I wish to discuss here the human costs of a minimum wage, and how it hurts its intended beneficiaries.

We first must briefly consider how markets set wages. Many people think businesses pay workers only what they are forced to and pocket a substantial surplus. In this view, political action raises wages through minimum wage laws, unionization through mandated collective bargaining laws, and political rallies to shame businesses into sharing their riches.

The numbers paint a different picture. Only about 3% of the workforce actually works for minimum wage, while just 11% of workers – and less than 7% in the private sector – were unionized in 2012. Businesses pay millions of American workers far more than the law requires without union pressure. Businesses must pay high enough wages so to hire employees with needed skills to produce goods and services, and the workers generate enough revenue to cover their wage.

These are the forces of supply and demand, so economic and not political factors explain salaries and wages. Firms bid against each other for valued workers. Wages reflect the number of potential workers with a given skill, demand by businesses for this skill, and the ability of other workers to acquire the skill.

What would an increase in the minimum wage to $15/hour do to workers who currently earn say $8/hour? Many will lose their jobs, either to automation or because businesses stop offering certain services. Wal-Mart might go to all self-checkout lanes with a couple cashiers to assist customers.

Some might say that society loses little if these low paying jobs disappear because asking people to work when they don’t receive a wage that allows them to enjoy life is demeaning. But low wage work benefits people in two ways. First, people don’t work at minimum wage jobs for long. Workers are often promoted as they acquire knowledge and skills and demonstrate reliability and value to employers. Second, working is strongly linked to happiness in life. While one might be tempted to dismiss this as conservative hooey, research shows that earned success matters more for happiness than money, and working is one of the main ways people earn success. As Arthur Brooks of the American Enterprise Institute argues, the welfare state is immoral because it fosters dependence on government and denies millions of Americans the opportunity to achieve happiness.

The human cost of a $15/hour minimum wage is now clear. People unable to enter the work world earning at least this much (plus government mandated benefits) will not get to work, since the minimum wage does not guarantee available employment at that wage. Denial of the opportunity to build skills and a work history forecloses the opportunity to earn raises and eventually make $15/hour (or more). Many who might enter the work force at low wages will never work regularly and lose the opportunity to earn success and lead happy (and productive) lives. This toll is an inevitable consequence of the minimum wage.

I think many liberals support raising the minimum wage because it is a cheap way to demonstrate their support for the “victims” of capitalism. Proponents can rely on businesses to limit the increase in the cost of the higher minimum wage by replacing workers with machines or outsourcing jobs to other countries. Furthermore, all consumers pay the higher costs, not just protestors. And many proponents make more than $15/hour, so the policy won’t ruin their own lives.

Is feeling better about oneself really worth preventing other Americans from attaining happiness in life? Is this what we should do if we really care about people?

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University. Respond to him at dsutter@troy.edu and like the Johnson Center on Facebook.

 

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