The following is adapted from Mere Economics: Lessons For and From the Ordinary Business of Life by Dr. Art Carden and Dr. Caleb Fuller. Used with permission of B&H Academic. Learn more and order here.
“The fifteen dollar minimum wage,” says US Representative Nancy Pelosi, “is a financial necessity for our families, an effective stimulus for our economy, and a moral imperative for our country” Representative Alexandria Ocasio-Cortez is similarly passionate: “You should absolutely 100 percent contact your senator and ask, ‘Why did you not vote to include the fifteen dollar minimum wage?’” Besides, doesn’t Scripture itself say “the worker is worthy of his wages”? It would seem that these politicians are on the side of the poor, and by extension, on the side of God.
But appearances are often deceiving, and the minimum wage illustrates one of Thomas Sowell’s maxims: “The first lesson of economics is scarcity: there is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” Just because a policy is economically sound does not mean it is politically advantageous, and just because a policy is politically advantageous does not mean it is economically sound.
Minimum wages make for superb political theater. “Elect me, and I will raise your wages” sounds good. So does “elect me, and I will protect those poor, helpless people over there.” Surveys indicate that the average American wants higher minimum wages. Who but a few God-hating sociopaths don’t sympathize with the plight for the poorest? But if a vote by Congress is enough to abolish the laws of economics, the 1938—the year the Fair Labor Standards Act created America’s first federal minimum wage — seems like an embarrassingly late start to begin painlessly raising the incomes of the “least of these.”
Employers don’t hire workers for fun or charity. Entrepreneurs demand labor(ers) for what they anticipate those workers will bring to the table. If hiring one more teenager will contribute an additional $10 of revenue every hour, an ice cream shop owner won’t be willing to pay more than $10 per hors for the teen’s services. Facing a minimum wage of $12 per hour, the owner might offer workers fewer hours, lay people off, or simply not hire anyone in the first place. A firm paying $12 to get $10 will not last long.
Common sense gets you this far. With a minimum price for broccoli some consumers would look for substitutes like asparagus and brussels sprouts. Labor markets aren’t different. When laws make labor more expensive, employers find substitutes. We believe that minimum wage advocates know this, too. How else to explain their cold, heartless refusal to lobby for a minimum wage of a hundred billion jillion dollars per hour?
That’s the first lesson of a minimum wage. It doesn’t stipulate that employers hire the same number of workers, only that the workers hired be compensated according to the law’s dictates. Incidentally, this first lesson explains why the American teenage unemployment rate rarely dips below 10 percent. Teens (especially males) don’t usually provide much value, so the minimum wage stops many youngsters from getting on the first rung of the employment ladder. It’s a tragedy since so much learning happens on the job.
What’s our ice cream shop owner to do? He begins substituting capital goods for labor. Rather than the personable experience of interacting with a flesh-and-blood server—quickly becoming the stuff of nostalgia— you instead punch your order into a (germy) computer interface or order ahead on an app. McDonald’s and Panera are two of the most conspicuous cases. Out with he low-skilled, moody and artificially expensive teenager; in with the sleek, shiny, and increasingly cheap gadgets! The real minimum wage, it turns out, is what you earn when you don’t have a job: $0.00.
This isn’t the wild speculation of economist make-believe. Economists studying Seattle’s recent experiments with minimum wage hies have found that when the hourly minimum wage increased from $10 to $16, hours worked in low-wage jobs fell by 6 to 7 percent. Wages in those jobs rose, but since hours of work fell, the poorest workers took home $74 less per month after the minimum wage hikes.
Adjustments on the demand side aren’t the whole story, though they usually grab most of the headlines. Fuller teaches at a college down the road from a large outlet mall. Suppose an outlet mall stock associate’s wage is $6 per hour. If so, probably no college students seek weekend employment at the mall. They’d rather sleep in, socialize, or (optimistic, we know) study. At the same time, a single mom with a high school education might need to feed her kids. She picks up a third part-time job stocking the shelves or working the cash register.
Now assume a do-gooder politician (is there any other kind?) seeks to help this woman by raising the minimum wage to $7.25 an hour. At the barely higher pay, a few college students apply for jobs. The extra buck twenty-five is enough to incentivize Fuller’s student to forgo whatever else she’d do on a Saturday morning. She now competes with the single mother, and the odds are that she will get the job as she likely has more skills and greater reliability because she doesn’t have a family and two other jobs vying for her attention. In other cases, the minimum wage hike may not be large enough to induce new workers into the labor market. But even in these cases, it may cause those already looking for a job to intensify their job-searching efforts. Jobseekers increased their search time by an average of seventy-five minutes a day in the face US minimum wage hikes between 2003 and 2016. It pays to search harder when the payoff is higher.
Early twentieth-century economists who favored the minimum wage understood and affirmed everything we have said here. That’s only puzzling until you grasp their sordid motives. The minimum wage was just the right tool for disemploying society’s least skilled, and thereby decreasing their odds of successful reproduction. Consider the economist Royal Meeker, who viewed the minimum wage as a boon: “It is much better to enact a minimum-wage law even if it deprives these unfortunates of work.” The minimum wage would thereby prevent the “inefficient” from “bring[ing] forth more of their kind.” While Meeker’s economics is correct—the minimum wage causes job loss— his ethics are despicable. What Meeker offered was nothing short of a kinder, gentler eugenics. To which we reply: “Whoever oppresses the poor shows contempt for their Maker, but whoever is kind to the needy honors God.”
