Legendary economist Murray N. Rothbard wrote in his book, Making Economic Sense: "In truth, there is only one way to regard a minimum wage law: it is compulsory unemployment, period."
Backgrounder on Recent Minimum Wage Story
The minimum wage has been at the forefront of political discourse since the economic collapse. Fast food workers are walking off their jobs, unions are marching the streets, and politicians are standing on their soapboxes calling for a $15 minimum wage. Our hearts bleed and our emotions want to give them that wage, but then logic inserts itself and then we look at the problems.
Ostensibly, the tens of thousands of workers and union activists holding placards stating "McGreedy! McStingy! McPoverty!” or “McShame. McDonald’s. Raise That Wage" are getting their demands met. Cities on the west coast – Seattle, San Francisco and Oakland – have boosted their minimum wages to $15. Other cities, such as New York, Washington and Kansas City, have proposed a $15 minimum wage. Even the province of Alberta in Canada is bringing in a $15 minimum wage over a three-year period.
It should be noted, however, that a majority of the recent protesters weren’t actually McDonald’s employees. So, in effect, the union and activists have gotten their way.
Despite the good intentions that perhaps some of these professional protesters have, they do not understand the intricacies of operating a restaurant. As has been reported time and again, the profit margins for restaurants, cafés, fast food establishments, and other food retailers are less than four percent. Once you calculate labor costs, utilities, rent, taxes, inventory, and so on, you can determine why profits for a Subway franchise aren’t exactly sky high.
So, why is there such a strong push for the minimum wage itself, something that only affects one to three percent of the working population and 0.4 percent of workers over 25?
Economist Nobel laureate Friedrich von Hayek perhaps summed it up in The Fatal Conceit: simple economic ignorance.
Here are five reasons why raising the minimum wage to $15 is a bad idea, and why the minimum wage must be abolished:
1. It hurts the very people it tries to help
Proponents of raising the minimum wage always cite the poor as reasons for giving them a wage boost. However, the minimum wage hurts the very people it attempts to aid. The unskilled, the uneducated, immigrants, and youth are affected the most because the higher the wage, the less businesses will want to hire these individuals. Here’s a list of some of the consequences:
- Businesses will increase their employment qualifications.
- Companies will refuse to train workers because they’re already paying a higher wage.
- Retailers, restaurants and fast food joints will slash hours, cut staff and refrain from expanding their workforce.
- Prices will go up. When you buy something, an array of factors is included in the price – utilities, labor, theft, rent, revenues, profits, and so on. Minimum wage workers will just have to pay more for stuff like everyone else.
- The unskilled won’t be able to gain real life skills because no one will hire them.
2. Rise of the Machines in Business
Indeed, businesses install automated practices. We have seen it in nearly every industry over the decades (just take a look at your local bank branch). However, the level of automation in recent years has gone on steroids. More businesses are incorporating automated technologies as a way to counter higher labor costs.
For instance, McDonald’s has installed self-serving kiosks, Pizza Hut has added self-serve tables, Chili’s has placed self-serve tablets at its diners, and Panera Breads is introducing self-service ordering kiosks and mobile ordering options.
It’s simple: the minimum wage is causing customer service to becoming automated and robots will replace fast food workers. Even the intellectuals concur. University of Oxford researchers released a paper that predicted 92 percent of fast food businesses will be automated in the coming decades.
3. There is no economic model
Usually, when a protester marches on the street holding a sign demanding a $15 minimum wage, they won’t back it up with any economic data, models or theories. Are these figures based on regression analysis or economic reasoning? In most cases, they will simply shout: everyone deserves a living wage! Without an economic premise backing such a movement, the general public will not understand the potential, and is guaranteed to fall out.
4. Government shouldn't be in wage and pricing business
When it comes to the role of government in the economy, you’ll have a wide range of concepts and opinions. Any sound, logical and sane economist will agree that government should not be in charge of prices, which is something Venezuela has meddled in and the U.S. has tried it before with disastrous consequences.
Why shouldn’t government be in charge of prices? Well, because prices are imperative to the free market. It sends signals to suppliers, manufacturers and consumers. It informs us of supply and demand. The complexities of prices is one of the reasons why government or any central planner can never interject itself into the pricing system. (It became so bad in the Soviet Union that economists allegedly replicated prices from the Sears catalog!)
The same argument can be applied to wages. The wage is something that is set by the market. Wages allow us to understand what fields are in demand and what jobs aren’t. It tells us that there is a labor shortage in one industry, while there is an oversupply of workers in another. A minimum wage distorts this.
Take a look at this example for argument’s sake: a coder is earning $15 per hour prior to the minimum wage hike. Now that the minimum wage is $15, a cashier will be earning as much as someone who went to school, garnered a valuable skill and is working in a high-demand field. Will the coder’s wage now jump to $25 or $30 per hour? Unlikely.
5. Minimum wage only benefits unions and big businesses
In the labor market, unionized workers compete with unskilled laborers. This is why they support a higher minimum wage because it diminishes the number of employment opportunities for those unskilled laborers and increases the number of jobs for unionized employees. Think of it as on the inside looking out for unions and on the outside looking in for unskilled laborers.
A higher minimum wage means that an unskilled or uneducated worker will not get a job.
Big businesses and corporations, too, benefit from a higher minimum wage because it defeats their smaller competitors. A billion-dollar corporation can absorb the costs of a higher minimum wage, but a small mom and pop shop down the street can’t. This is why we’re already seeing so many stores in $15 minimum wage cities closing shop.
The minimum wage debate is based on emotions. We don’t want to see a mother of three working at Burger King unable to feed her kids. But once we start using our little gray cells, as the great Hercule Poirot literary detective said, we can start realizing that she’ll be worse off with an increase in the minimum wage.
If unions, antipoverty activists, big businesses and bureaucrats really cared for the impecunious, then they’d be advocating for sound money, a decrease in the national debt, taxes and market interest rates, and a reversal in price inflation. These are the real problems surrounding the economy and the average person.
Many people like to point to European economic models as ones that we should replicate. Well, what if you discovered that so-called paradises like Switzerland, Finland and Austria had a $0 minimum wage? Perhaps these same people only like to pick and choose.
What is your opinion on this matter? Let us know in the comments section...