PARTNER SITES

Minimum Wage Laws are Immoral

Most countries have some kind of minimum wage laws. They are intended to protect unskilled or inexperienced workers against “exploitation” by employers who, in the absence of such laws, presumably would not pay wages their employees deserve and need to support themselves. Yet, I argue that minimum wage laws are unethical.

Minimum wage laws are unethical because they, like other employment legislation such as affirmative action, introduce government force into employment relationships which should be based on voluntary trade between employers and employees. Businesses should be free to hire whom they choose and negotiate pay based on the prospective employees’ value to the business. The employees are free to reject the offers and to seek work with other companies that value more highly what they have to offer. Or, if the employees do not have much to offer, they are free to upgrade their skills through further training.

Being able to follow what Ayn Rand termed the Trader Principle—to trade value for value for mutual benefit and by mutual consent—is in the interest of both companies and employees. By hiring and compensating employees based on their value, companies are able to be as productive as possible and maximize their long-term profitability. This is in the self-interest of companies, in other words, their owners. (The fact that some companies choose to hire employees based on irrational principles such as racial discrimination, does not diminish the value of the Trader Principle. Companies not hiring on the basis of competence and productivity will suffer the consequence of lower competitiveness and will be forced out of business.)

Being able to freely trade value for value is also in the interest of employees and prospective employees. Being able to negotiate wages without government-mandated minimums will make unskilled and inexperienced workers more attractive to employers. This would give job opportunities to young people in particular and to those with fewer skills in general. Young people are often both inexperienced and unskilled and cannot compete with older, more experienced and skilled workers when companies are forced to pay both the same minimum, despite the lower productivity of the less experienced and less skilled young workers. The youth unemployment rates (for 15 to 24-year olds) in the developed world—typically at least twice as high as the rates for the adult population—attest to that reality. (Although many in the youth age group go to school or work part-time, the twice-as-high unemployment rates cannot be attributed to that alone but reflect the barrier to youth employment created by the minimum wage laws.)

The second reason why the ability to negotiate wages freely without government interference is in the interest of employees and prospective employees is that it unleashes businesses to maximize their productivity. This translates into more wealth being created and invested into further production, which means more job opportunities, more demand for labor—and higher wages and higher standard for living. When businesses are free to create wealth, the economy prospers and the labor market is healthy. Should an employer decide to pay lower wages than employees deserve, based on their productivity, the employees can either negotiate for an increase in pay, or to find another job.

What about the argument that government-mandated minimum wages are necessary because otherwise workers would be paid less than they deserve and need to support themselves? Again, the principle is the immorality of government-initiated force. Why would government bureaucrats as opposed to individual employees or job seekers know better what an acceptable minimum wage is? If you decide that $7/hour is an acceptable wage for the opportunity to gain work experience, to develop your skills, and to increase your employment prospects, who is the government to tell you otherwise—and to leave you unemployed because a minimum wage higher than $7/hour makes your uncompetitive? Supporting yourself at $7/hour would be challenging and would require tight budgeting and discipline and perhaps even taking on another job—until you have developed your skills and increased your productivity to be able to negotiate higher pay. And if your employer will not pay what you deserve, you are free to find another company that will.

The government has no business in dictating voluntary trade between employers and employees. The minimum wage laws are immoral and should be abolished, leaving businesses and workers free to prosper.

,

  • Demosthenes

    Nicely argued.

  • makerofthings7

    $7 an hour, minus taxes is about $5 hour. How will they pay for food, shelter, clothing, and medical AND find the time and energy to develop their skills so they can get a better paying job?

  • tim_lebsack

    Step 1) Government discontinues confiscating taxes from this persons earnings.

  • makerofthings7

    Agreed. How is the government budget offset? Taxing the rich? Entitlement cuts?

  • tim_lebsack

    cut spending

  • http://contentsynergy.com Phillip Barnhart

    Does this then also mean that individuals are free to organize and collectively bargain, including negotiation of a closed-shop agreement, without interference from the state? Does not the argument against the minimum wage apply equally to arguing against right-to-work legislation?

    In a corollary, what about workplace protection like OSHA and workers compensation insurance? Would this also once again legalize the truck system (company store) which paid employees in commodities or exchange tokens rather than wages?

  • writeby

    “Does this then also mean that individuals are free to organize and collectively bargain…”[?]

    Absolutely, but without the force of law requiring employers to accept what they offer (Wagner Act).

    “… including negotiation of a closed-shop agreement, without interference from the state?”

    Absolutely, if the business owners’ agreement is voluntary, reached without coercion. As Ford chose to pay his workers $5 a day when the rest paid far less. He did so to get the best workers. If a business owner thinks a closed shop will yield the best labor, the most efficient and conscientious workers, _no one_ has the right to stop him or those workers.

    “Does not the argument against the
    minimum wage apply equally to arguing against right-to-work legislation?”

    Absolutely 100%. Right to work laws are equally coercive against business owners. Suppose Ford discovered the best workers were union men? Under RTW laws, he’d be prohibited from requiring those worker to join the union upon being hired.

    Private property begins with a person’s life–body & mind–for *all* human beings. Those who have built businesses with their capital and with their sweat, the owners, are the *only* ones who have the right to dispose of that property–to pay what they choose; to hire whom they choose; to fire whom they choose.

    Workers have the right to walk off jobs, not hire on with certain companies, form unions and, most crucially, to start their own companies & run those others out of business.

    This is *not* an issue about union vs. non-union; it’s an issue of coercion vs. non-coercion. In a capitalist system, coercion is _off the bargaining table_. And, I’ll add, out of the board rooms (thru fraud, sweetheart deals via government subsidies, monopolies, contracts, etc.)

    One’s labor & it’s fruits are products of one’s effort–extensions of the private property of one’s body. For *all* human beings (& why abortion is a *property* right, inviolate).

    Which is why, from minimum wage laws, to legislated closed shops to right to work laws to government granted monopolies (cable companies come quickly to mind), it all boils down to coercion–to telling some human beings that other humans beings have the right to control their lives.

    That is a) immoral (a man’s life is the moral standard); therefore b) impractical: (a forced mind is an impotent mind); and, in a (genuinely) free country, ought _always_ be illegal for citizens to initiate coercion and unconstitutional for a government to employ it.

  • writeby

    Food for thought:

    Currently, 90% silver coins are being bought for 12 times face (silver’s $19.40 oz. on the spot): 12 X .25 =$3.00. Below is the price of standard items based (approximately) on that value in silver quarters:

    Cigarettes ($7.00): .58 cents a pack ($7.00/12)

    Gas: ($4.00 gal): .34 cents a gallon

    Milk: ($5.00 gal (FL)): .42 cents a gallon

    Bread ($3.00 loaf): .25 cents per loaf

    Movies ($10): .84 cents

    New Car ($20,000): $1,600

    New Home ($200,000): $16,600

    The above serves to illustrate two things: 1) businesses are charging what they charged 50 years ago; 2) the value of the current U.S. Dollar is .083 cents.

    Just remember this when you’re told government control of the monetary system coupled with deficit spending “saved” capitalism and that such government action “helps” the poor.

    Or that minimum wage laws serve the workers.

    “The nickel today is not what it was fifteen years ago. Do you know what this country needs today?…A seven-cent nickel. Yessiree, we’ve been using the five-cent nickel in this country since 1492. Now that’s pretty near a hundred years’ daylight saving. Now, why not give the seven-cent nickel a chance? If that works out, next year we could have an eight-cent nickel. Think what that would mean. You could go to a newsstand, buy a three-cent newspaper and get the same nickel back again. One nickel carefully used would last a family a lifetime.” –Groucho Marx

  • Hilda

    Austrian Economics 101 in a nutshell.

  • Steve Storck

    But why should an employer pay more than the market value for goods or services? Just because they *can* pay more doesn’t mean that they *should* pay more. For example, have you paid more than market value when purchasing a vehicle? Or have you tried to get the best deal that you could get? If you negotiated a better price, then you were taking money out of that poor salesman’s pocket that he could have used to feed his children! How will he better himself if you are taking away from his cut!

    Or, better yet, try not to tangle emotion into your argument. Instead, examine the factors that keep markets repressed.

  • makerofthings7

    Be specific. Cut spending saying exactly what I asked.

  • makerofthings7

    Why do we have any government mandated public infrastructure at all? (roads, bridges, schools, etc) It’s because pure capitalism doesn’t apply to every situation. One such situation is the human right to life and freedom. It’s written in the Constitution, but excluded from how capitalism works.

    If in capitalism, there is an economic way to “imprison” or “enslave” a group of people, then it’s the government’s duty to ensure that those barriers are removed.

    This is why minimum wage exists, to patch the imperfect vision of capitalism, so that it doesn’t collapse in on itself.

    Capitalism has only been around a few hundred years, currency, on the other hand, has been around since 2,000 BC. It would be naive to rely on pure capitalism, without acknowledging the pitfalls or the proposed fixes that take the bigger economic picture into account.

    I disagree that I tangled any emotion into my argument… but that whole point of yours seems irrelevant anyway.

  • Steve Storck

    You describe a fundamental flaw in your understanding, I’m afraid. Capitalism is merely a word that describes the free market. It is up to a (properly scoped) government to defend your right to life and to protect your other rights and freedom.

    The government’s only proper duty with regard to an economy is to prevent force and fraud. Whether you agree or not, this doesn’t require an arduous set of regulations that tell people *how* to obey the law. It does not require looting or redistribution of wealth to achieve what you describe. In fact, it is redistribution of wealth that imprisons and enslaves a segment of the population in favor of another segment of the population. Ohnoes! Are you stating that it’s okay to imprison or enslave a segment of the population if they meet your personal criteria of being in an adequate economic position?

    “This is why minimum wage exists, to patch the imperfect vision of capitalism, so that it doesn’t collapse in on itself.” The absurdity of your notion is apparent in examining this country before minimum wage laws were passed. The economy grew faster than any other economy in history. Why are you making stuff up? We are smarter than that.

    Note that I’m fully aware that you did not answer the questions that I posed. You simply reiterated your irrational argument. If you want to be taken seriously, you will have to come up with a solid argument why someone’s goods or services (labor) are worth more than what the market pays for it. You’ll have to tell us why they are entitled to more than their offering is worth. Then you will have to come up with an objective means of determining where to draw the line. At what point is your labor worth what the market will pay for it? Is there a point where your labor is worth less than what the market will pay? You also need to justify why the rest of the economy must shoulder the burden and become, essentially, sacrificial animals to the people of lower income levels.

    You can see how quickly this all becomes absurd, and your position cannot be consistent across the entirety of the economy. It’s entirely arbitrary and fueled by an emotionally-perceived injustice. We can only expect that your goal posts will change with the agenda-du-jour.

    You think that you are on a moral high ground, but when you look closer, it appears that you are pissing up a rope.

  • http://blog.area23.at/ Heinrich Elsigan

    A great article!

    my thoughts:
    The plantation slaves in the southern states were given food and a hut to sleep. If I pay you a penny per day, then we’ll have again slavery!
    But I think, that noboby would work for 1 penny a day in real life and no reputable company will propose such low wage.

    The market should be free and if someone is apprentice / student or old a minimum wage will destroy jobs.

    In my opinion there is no need for a minimum wage at the junction where supply and demand match each other for satisfaction of both parties.

    Do you agree, that capitalism works only with a certain purchasing power in bulk?
    Under my point of view good work should be also payed good too and there must be incentives for assignment, work input/performance and service efficiency.
    A worker who never gets more, no matter how hard he/she tries and how good he/she did her job, will be demotivated sooner or later.
    If doing a better job doesn’t imply an award, then it’s no longer capitalism, it seems to be communism. A lower starting salary is logical, cause a high one couldn’t be increased for doing a better job!

    A question to the authoress:
    Is it an illegal subsidy under your point of view, that undermines free markets, if the german state pays each german Hartz-IV 1€ jobber a certain supplemental income?
    In my opinion this is illegal subsidy, cause the worker could not live with € 1 per hour and he would ask for more, if the state doesn’t pay him a supplement (that comes from taxes of other people)

    A true story from Austria: (austrian economics has nothing to do anymore with Austria, cause 4/6 parties are leftists behind their mask)

    In Austria an elderly woman asked her (female) boss:
    “Can I work a little less and I accept slightly less pay.”
    Boss agreed, cause company hadn’t so many charges in economic downturn. Then socialist trade union got wind of it and sued the company to court.

    The elderly woman was pissed, her boss was pissed, liberal people like me were very angry, but the socialist trade union thought inwardly: “I don’t want, that people want work less for less payed, because otherwise the state has less tax revenue and socialist trade unionist are payed from taxes!”

    In Austria the state also never mind about, that tax revenue always depends on economic cycles.

    So always think about, that behind the noble idea of a minimum wage, might be only the desire of the state for more tax revenue (but the state will not get so much more taxes for real, cause at the same time the state increases minimum wage, the unemployment will grow up too!)
    If the minimum wage is increased too much every year, economic competitiveness will be lost!
    To push wages and prices down again is economically and socially much more difficult than increasing them.

  • Guest

    A true story from Austria: (austrian economics has nothing to do anymore with Austria, cause 4/6 parties are leftists behind their mask)

    In Austria an elderly woman asked her (female) boss:
    “Can I work a little less and I accept slightly less pay.”
    Boss agreed, cause company hadn’t so many charges in economic downturn. Then socialist trade union got wind of it and sued the company to court.

    The elderly woman was pissed, her boss was pissed, liberal people like me were very angry, but the socialist trade union thought inwardly: “I don’t want, that people want work less for less payed, because otherwise the state has less tax revenue and socialist trade unionist are payed from taxes!”

    In Austria the state also never mind about, that tax revenue always depends on economic cycles.

    So always think about, that behind the noble idea of a minimum wage, might be only the desire of the state for more tax revenue (but the state will not get so much more taxes for real, cause at the same time the state increases minimum wage, the unemployment will grow up too!)
    If the minimum wage is increased too much every year, economic competitiveness will be lost!
    To push wages and prices down again is economically and socially much more difficult than increasing them.