Minimum Wage = Price Fixing

This letter was sent to the Atlanta Journal Constitution on September 2, 2000. A similar letter was sent to Speaker Dennis Hastert with copies to members of the Georgia U. S. Congressional delegation. Speaker Hastert recently proposed a compromise with President Clinton that involved raising the minimum wage.
— 09/03/00


Dear AJC Editor:

This letter is in reference to Republican willingness to pass a higher minimum wage. Raising the minimum wage is a bad idea.  Here’s why.

The numbers that follow are for illustration only. Let’s say an employer is willing to pay $50 per day for the labor or value an individual provides. This mutual accommodation is the backbone of free enterprise and a capitalist society. The worker willingly provides labor for the amount of wage the employer offers. Wages are a price paid for a service. If you set a minimum wage you are fixing a price.

Now comes a government edict that all individuals making $50 per day must receive $60 per day for their labor. Employers, like any good consumer, will study hard to see if the labor they receive is really worth the wage or price they must now pay. This will have multiple downstream affects on the individual, the employer, and everybody they come in contact with.

The labor saving technology not previously purchased by the employer will become more affordable. Even without technology, many employers will not be willing to pay more than what the labor offered is worth. If the labor is essential to their business, they may have to pass the $10 extra cost on to their customers. If this happens, the customer loses the purchasing power of the $10. This reduces demand for other products and services by $10. The same thing happens if the employer elects to absorb the $10. His ability to purchase products and services is reduced.

Since some employers will elect to purchase labor saving technology with the $10 they are being forced to spend, demand and employment in the technology industry will increase. The $50 per day employee lacking the ability to offer skilled labor will find fewer job offerings. An individual willing to work for $50 per day is now unable to offer his services for the amount they are worth. This individual will be pushed toward public assistance. The taxpayer will subsidize this person with $35 per day. The net result of the price fixing is zero wealth has been created. It has merely been transferred.

Some people and industries may be better off and others may be hurt. Success or failure can be determined by free markets or government edicts. History shows that free market principles are more effective than socialist economic central planning. Central planning is taught in most of our universities.

If these arguments are unpersuasive, consider this. Unemployment is currently very low. Everywhere you go businesses are trying to fill vacancies. Why would employers pay less, when bidding to fill vacancies if labor was in short supply?  Nor does it make sense to force employers to pay more, when labor is surplus.  Leave free market choices alone!

Washington politicians don’t understand what they are doing, or don’t care. I think they’re buying votes and screwing around with our economic freedom.

Wes Alexander