September 29, 2004
The Pros and Cons of a Minimum Wage

[Updates below.]

Here is the rough draft of the paper I'm turning in today to my St. Edwards Introduction to Critical Inquiry class. The final draft will be due next Wednesday and will conclude the class.

Charles Hueter
Rene Eakins
A-NCCI 3330: Position Paper Rough Draft
September 26, 2004


SHOULD WE HAVE A MINIMUM WAGE?

In the midst of the Great Depression, the United States federal government passed the Fair Labor Standards Act (FLSA). During its almost 70 year existence, the federal minimum wage has been amended several times to both expand the coverage of the law to more workers and to increase the wage floor itself. Many of the fifty states have enacted their own minimum wage laws, some of them set even higher than the federal level. Today, we see little substantive debate over the merits of these laws; rather, the focus is on the degree of their application. Given the impact these laws have on our society, I believe a return to the original debate is essential: should we impose a minimum wage on employers?


History


The 1938 enactment of the FLSA wasn't the first time a government in the United States passed a law mandating a minimum wage. In 1912, Massachusetts became the first state to enact a minimum wage. One year later, the following states created their own laws: California, Colorado, Minnesota, Nebraska, Oregon, Utah, Washington, and Wisconsin (State of Wisconsin 2).

Congress hasn't left the minimum wage alone since its enactment. Since the 1938 law, the FLSA has been amended almost every year to expand coverage of the wage floor and to increase the wage itself, with a significant change in 1978 eliminating the separate wage tracks established for farm workers (US Department of Labor A).

Currently, seven states have no minimum wage of their own. Two have rates lower than the federal level. Twelve states and the District of Columbia have rates higher than the federal wage, which is at $5.15 per hour (U.S. Department of Labor B). Both Republican President George W. Bush and the Democratic nominee for President, Senator John Kerry, endorse an expansion of the federal minimum wage, though they have differences regarding the amount (Farhi A2).


For a Minimum Wage


The arguments for a minimum wage have remained remarkably consistent over the years. Like most arguments, they can be broken down into two general parts: the ethical and the practical. I shall present the ethical case first. However, it should be noted that there are three distinct varieties of legal wage floors that people advocate these days. They are a simple low minimum wage that impacts the business world as little as possible while still providing some low-end boost to bottom-rung wages; a "living wage" that "should, with full-time work, lift [lowest wage workers] out of poverty" (Bernstein); and an even higher "good-life" wage that provides the opportunity to live independently of outside assistance and even indulge in things like vacations and higher education (Cordero 210). Regardless of these differences, they still retain several fundamental arguments at their core and can thus be addressed all together.

I found that proponents for any minimum wage believe the raw value of one's labor to a business shouldn't be the primary factor in determining that worker's wage (Bhargava). They consider a wage to be something not only owed to someone on the basis of their labor's value, but also in light of their need. This belief isn't new. In the late nineteenth century Karl Marx famously proclaimed in his Critique of the Gotha Program, "From each according to his ability, to each according to his needs!" This philosophic undercurrent can be seen in nearly every argument for a minimum wage.

The driving force behind this line of thought is an altruistic utilitarianism. Humans should care for one another and take into consideration those affected by their actions. In addition, we should work for the benefit of all or at least as many as we can. Therefore, enacting legislation that requires wages go no lower than a certain level is a moral act; opposing such legislation is immoral (Cordero 212-213). It helps those who need it the most: the young, the unskilled, the elderly, and the disabled (Lieberman). They are the people most likely to have labor of lower value than average and would therefore need the extra money more.

Complimenting and extending this moral duty to help the needy is a consequentialist element. In the labor pool there are people who are new to the market, young, and unskilled. In order for their jobs to have significant consequence for them, those jobs need to pay an amount that matters to them. Employees earning low wages are likely to apply for and receive welfare benefits, thereby increasing the costs society must pay in order to keep them afloat (Halter 707). Therefore, we should consider a high minimum wage as an important part of a comprehensive government assistance package (Edelman 95). If this doesn't happen, the working poor will be further imperiled.

The standard free market economic complaint that minimum wages cause unemployment has come under significant attack in the last decade (Card and Krueger). Therefore, the much-trumpeted negative outcomes of a modest minimum wage are, at best, nonexistent or, at worst, minimal.


Against a Minimum Wage


The basic practical argument against minimum wages is that they don't accomplish what they set out to do and actually create more problems than they set out to solve: "...minimum-wage laws cause unemployment, a lifelong depressing effect on the earnings of many of those forced into unemployment, and harm in particular the least-skilled, most-disadvantaged members of society" (Reisman 660). There is also evidence that the very people targeted with these laws aren’t likely to benefit from them (Kersey). Since there is a given amount of labor willing to do work at a certain wage and there is a given amount of work employers are willing to hire people to do at a certain wage, involuntarily forcing the low end of those wages up will disemploy some workers (Partridge and Partridge 361). Those workers are typically the ones most employed at low wages: teenagers, African Americans, etc. (Horowitz 3-5). Though it has been mentioned the standard capitalist argument against a minimum wage has come under empirical attack lately, it must be said there is no consensus on the matter (Neumark and Wascher; Partridge and Partridge; Kennan).

There is also other practical criticism. Minimum wage laws interfere with the law of comparative advantage and monopolize the affected labor markets in favor of the higher-skilled laborers whose labor is worth the higher wage (Reisman 355-356; 382-384). Some argue that the effect that the minimum wage is merely a huge, hidden tax paid by a small minority (low-wage employers) with the proceeds going towards another small minority (low-wage employees) without any transparency or accountability (Landsburg). Interestingly, Tom Lehman was able to find evidence some businesses support a minimum wage because they might "force their larger rivals to pay higher wages" thereby compelling the government to act for their advantage and effectively burden their larger competitors.

Additionally, some employers may choose other methods than simple layoffs to offset the added costs of a more expensive workforce (Brown, Gilroy, and Kohen 489-490). They theoretically include hiring fewer employees in the future; not replacing all employees who resign, retire, or are fired; not making capital expenditures to improve their business; raising prices on the goods and services they offer; and decreasing the number of hours worked per employee. Furthermore, to the extent that these minimum wages aren't "relevant to the market" (Rothbard 133), any actual disemployment will be small enough to be simply swallowed up and absorbed by the business, thereby taking a hit to their profitability.

The moral argument against a minimum wage is based on the ideas of self-ownership and freedom, grounded in the ethical concrete of self-interest. Wage floors violate "the right of employers to freely negotiate compensation with employees" (McQuillan). The freedom for the actors in a transaction to arrive at a mutually beneficial employment deal is something that should be preserved and not infringed. More bluntly, "In truth, there is only one way to regard a minimum wage law: it is compulsory unemployment, period" (Rothbard 133, emphasis in original).

The freedom to operate your own business is also impacted. Who actually owns a business when crucial decisions such as how much employees are to be paid are made by those who don't run the company? Given that "the low-wage labor force is, by definition, a labor force lacking some combination of education, training, job experience, and social skills" (Horowitz 7), it is only fair to pay an employee what his or her labor is worth.


Conclusion


One of the most interesting things I discovered while researching this topic was the historical nature of the argument. This goes back many decades and involves age-old theories about the nature of human action. The recent empirical research that seems to prove a minimum wage increase doesn't cause unemployment shook deeply the foundations of labor economics, but I favor the explanations of the side opposing wage floors. I certainly don't consider advocating them an "attack on poor people" (Halter 706); I hold no ill will towards them.

Some empirical studies may appear to lend weight to the claim that these laws don't cause unemployment, but they aren't comprehensive enough to fully gauge the extent of the negative economic effects of such mandates. It cannot be escaped that the government causes unnecessary economic negative side effects by outlawing wages below a certain level. More importantly, it also cannot be escaped that the actions of government interference in a business's hiring practices is fundamentally at odds with the things that make the United States such a unique and important place to live: our individual liberties. These laws act as an initiation of force against an entity that has not caused harm and does not deserve the punishment. Jobs are taken and left voluntarily and it is the responsibility of the participants in that agreement to decide if the terms meet their needs.

I fail to see why every job must compensate the employee such that the employee's financial needs can be met. It seems like a mandate with little to anchor it in reality. It is easy to give in to the emotional arguments proposing any variation on the minimum wage, but if we are to value sustained economic progress and freedom, I think the minimum wage should be avoided and abolished.


WORKS CITED


Bernstein, Jared. The Living Wage Movement: Pointing the Way Toward the High Road. 17 July 2000. Economic Policy Institute http://www.epinet.org/content.cfm/webfeatures_viewpoints_lw_movement

Bhargava, Deepak. "How Much Is Enough?" The American Prospect Sep. 2004. 27 Sep. 2004 http://www.prospect.org/web/page.ww? section=root&name=ViewPrint&articleId=8348

Brown, Charles, Curtis Gilroy, and Andrew Kohen. "The Effect of the Minimum Wage on Employment and Unemployment." Journal of Economic Literature 20 (1982): 487-528.

Card, David and Alan B. Krueger. Myth and Measurement: The New Economics of the Minimum Wage. Princeton: Princeton University Press, 1997

Cordero, Ronald A. "Morality and the Minimum Wage." Journal of Social Philosophy. 31.2 (2000). 207-222.

Edelman, Peter B. "The Welfare Debate: Getting Past the Bumper Stickers." Harvard Journal of Law & Public Policy 27.1 2003. 93-100.

Farhi, Paul. "Kerry Backs $7-an-Hour Minimum Wage." Washington Post 19 June 2004: A02

Halter, Anthony P. "Chipping Away at General Assistance: A Matter of Economics or an Attack on Poor People?" Social Work 39.6 (1994). 705-709.

Horowitz, Carl F. "Keeping the Poor Poor: The Dark Side of the Living Wage." The Cato Institute Policy Analysis No. 493. 21 Oct. 2003. 28 Sep. 2004 http://www.cato.org/pubs/pas/pa-493es.html

Kersey, Paul. "The Economic Effects of the Minimum Wage." Capitalism Magazine 15 May 2004. 27 Sep. 2004. http://www.capmag.com/article.asp?id=3675

Kennan, John. "The Elusive Effects of the Minimum Wage." Journal of Economic Literature. 33 (1995): 1949-1965.

Landsburg, Steven E. "The Sin of Wages: The real reason to oppose the minimum wage." Slate 9 Jul. 2004. 22 Sep. 2004 http://slate.msn.com//id/2103486/

Lehman, Tom. "The Wages of Sinful Economic Arguments." Ludwig von Mises Institute 5 Aug. 2004. 27 Sep. 2004 http://www.mises.org/fullstory.aspx?control=1577

Lieberman, Trudy. "Hungry in America. The Nation July 2003. 27 Sep. 2004 http://www.thenation.com/doc.mhtml?i=20030818&c=1&s=lieberman

Marx, Karl. Critique of the Gotha Program. New York: International Publishers, 1971.

McQuillan, Lawrence J. "Minimum of Understanding." NationalReview.com 27 May 2003. 27 Sep. 2004 http://www.nationalreview.com/nrof_comment/comment-mcquillan052703.asp

Neumark, David, and William Wascher. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment." The American Economic Review. 90.5 (2000): 1362-1396.

Partridge, Mark. D and Jamie S. Partridge. "Are Teen Unemployment Rates Influenced by State Minimum Wage Laws?" Growth & Change 29.4 (1998). 359-382.

Reisman, George. Capitalism: A complete and integrated understanding of the nature and value of human economic life. Ottawa, IL: Jameson Books, 1998.

Rothbard, Murray N. "Outlawing Jobs: The Minimum Wage, Once More." Making Economic Sense. Auburn, AL: Ludwig von Mises Institute, 1995. 132-135.

United States A. Department of Labor. History of Changes to the Minimum Wage Law. 22 Sep. 2004 http://www.dol.gov/esa/minwage/coverage.htm

United States B. Department of Labor. Minimum Wage Laws in the States. 22 Sep. 2004 http://www.dol.gov/esa/minwage/america.htm

State of Wisconsin. Department of Workforce Development. Historical Resume of Minimum Wage Regulations in Wisconsin. 1 Apr. 2003. 27 Sep. 2004. http://www.dwd.state.wi.us/dwd/publications/236e_28a.htm


Questions, comments, and criticism are welcome.

UPDATED 3/9/2005 8:52am
I've written another final paper for the same professor in a different class: A Conceptual Analysis of Public Goods - The Case of Nationalized Defense

UPDATED 11/13/2006 2:34am
There is new interest to increase the federal minimum wage. I've taken the opportunity to revise and extend my moral case against it.



Posted by Drizzten at September 29, 2004 04:38 PM

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Comments

Very good read.

What happens to Imigation when raising the minimum wage? I have a good guess.

Posted by: Jamie Perryy on October 18, 2004 12:18 PM

Mr. Perry, I'd assume that an increased minimum wage puts upward pressure on the incentive for the citizens of neighboring nations to immigrate to the country that imposed the higher wage floor. This assumes the immigrants' country has a lower minimum wage, of course. I haven't studied the data or anyone else's work to back this assumption up, but it certainly make sense theoretically if everything else was equal.

Posted by: Drizz on October 18, 2004 01:39 PM

Hey I was just wondering what are the pros of raising minimum wage becuase i have a report for one of my classes and i need some help. If thats not too much trouble can you send me and e-mail (cwetnose@aol.com) with real statistics on the matter. Please and much thanks.

Posted by: Casey on December 12, 2004 09:24 PM

Casey, the only pros to a minimum wage I can think of go towards the employees who end up receiving it...meaning, those who aren't fired, have their hours cut, encouraged to retire early, etc. Other than that superficial benefit, I see no pros to speak of. The minimum wage is a forced transfer of wealth from employers to the lowest rung of the employment ladder and as a result, it upsets the natural wage scale and forces employers to eat higher labor costs which they must then mitigate through various ways.

I don't have stats to show you, primarily because the empirical research has not been completely conclusive one way or the other. Anything I would refer you to would be contained in the list of works cited on this page. I'll e-mail this to you tomorrow.

Posted by: Drizz on December 13, 2004 09:54 AM

Wow, The RaWrNess!

Posted by: RaWrNess! on May 13, 2005 09:51 AM

Our state of Montana is currently looking at a state minimum wage. I think one element that has happened since the last change to $5.15 is the Internet. Companies that once had no choice but to pay employees more and raise prices are now free to expand profit centers online. I think this might affect the jobs for lower income groups because employers now have an opportunity to replace flesh and blood salespeople with a "fill your cart" internet sales. Any thoughts?

Posted by: Tom Egelhoff on March 16, 2006 01:45 AM

Mr. Egelhoff, you are probably correct. Cashier and other point-of-sale positions that otherwise might have existed before the invention of the online shopping cart are likely taking a hit.

Keep this in mind, though:

For the companies who have existing physical retail locations, an online shopping cart system isn't removing jobs from the real world, it provides customers an additional way to shop without the expense of an additional physical location.

For the companies that have just begun to operate, those retail point-of-sale positions never existed to begin with. If there was no way to cheaply sell over the Internet, the company itself might not exist.

Posted by: Drizz on March 17, 2006 01:20 PM
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