Two problems: government imposition of a minimum wage is price-fixing. Worse, it doesn’t work because people don’t live an hour at a time, they live month to month.
It’s not in the best interest of consumers when governments price-fix the price of labor. Technically, price-fixing is when participants in a market buy or sell a product, service, or commodity only at a fixed price.
Besides causing higher prices, price-fixing a minimum wage raises employment barriers for unskilled workers since workers trade productivity for wages. If what a worker must be paid does not return an equal economic productivity, they cannot be employed.
The media bombards us with heart-wrenching stories of abject poverty for people making the minimum wage. But people live by the month, never by the hour.
There is no amount guaranteed other than the hour worked. The workers are injured when businesses, reacting to rising labor costs, trim the workforce hours or workers.
Consider if someone is making $7 an hour for thirty hours a week. Their gross pay is $210 a week. If the minimum wage rises to $9 an hour, since the business labor costs may be fixed, that business may cut minimum wage employees to fifteen hours a week which is $135 a week.
The government requirement is an hour, not a month. We live by the month. Of course, minimum wage earners may be the first cut since they have the least job experience. Then their minimum wage is zero.
Price fixing has been illegal in our country since the Sherman Act in 1890. When has any government price-fixing worked? Soviet Union price-fixing caused low prices for groceries in empty grocery stores.
In World War Two our government froze wages so for businesses to hire someone from a competitor they had to offer something else of value. It was health insurance which was not used much before then.
Over the years, the health insurance industry grew into one sixth of our economy as our resources were given to Insurance and pharmaceutical companies along with lots of lawyers, lobbyists and politicians. Smaller amounts went to doctors and hospitals. Finally, we people became just the giving units to the high and powerful.
Price-fixing by our government on domestically produced oil brought us the gas shortages and higher prices for energy in the 1970s along with the increase of economic power for the Middle East Oil Cartels.
President Reagan stopped the price-fixing and oil prices went down. The more governments price-fix, the worse it becomes for their citizens. Economist Milton Friedman wrote, “The most important single central fact about a free market is that no exchange takes place unless both parties benefit.”
My biggest concern in these Minimum Wage increases is that it precludes some people, usually very low skill or no skill workers from even getting a job since they must return in productivity what they are paid or the business will fail at some point.
Often work hours are cut for the already employed low-skill workers which reduces their gross amount of monthly money. We used to work a standard forty hours a week. Lately it’s thirty-two or twenty-eight hours.
The living wage is touted but what should be the amount? If it’s tied to $15 an hour and full employment of forty hours a week, that’s $31,200 a year. The government requiring a living wage means low-skill workers will never be employed since they cannot return that much monetary value to their employers.
Now, if the government doesn’t like what I, as an employer, pays, they are free to add any amount they want to the paycheck of my employee. But I have three factors always: markets including prices for my goods, labor costs to produce those goods and the return on investment that keeps me in business.
If you take the cost of labor over the possible return from the sale of my goods, I must either trim the work-force or close the business. That’s Economics 101.
As President Ronald Reagan said at his first inauguration, “In this present crisis, government is not the solution to our problem; government is the problem.” Amen to that.