Why Shouldn’t We Have a $1000 Dollar Minimum Wage?
We could all get mansions like the people that run Black Lives Matters!
Mitt Romney was once relentlessly mocked for saying, “Corporations are people, my friend.” Politically, it was not a smart thing to say, but contrary to what most people seem to think, at a very fundamental level, it’s true. I can tell you that from personal experience because I own a corporation. At its peak, that corporation (which was responsible for Right Wing News and other properties) included a partner and there were more than 30 independent contractors working for us, but initially, the only employee of my corporation was me.
I am pointing this out because as with so many issues we face in America today, people have lost sight of first principles. That’s particularly true when it comes to the minimum wage. So many people talk about that in terms of “What’s fair,” What people can live on, or “What’s a living wage?” However, none of those things are what wages are all about.
For example, when I started my corporation, I did almost everything. Then, as it became more successful, there were opportunities to expand or things I didn’t want to do anymore. So ideally, I needed other people to help me. To get those other people to work for me, I was willing to pay them a wage. The wage needed to both meet my needs and the needs of the person that I was hiring. As for my part, obviously, I wasn’t running a charity, so I needed to make more money than I was paying out to my employees. Similarly, the employees needed to benefit from the arrangement as well. So, my corporation needed to pay them enough money that they thought it was worth their time to work there.
Notice what we have there. A voluntary exchange of money paid out by a corporation to an employee that thought it was worth their time to work for that amount of money. When we didn’t want to continue paying someone a wage because they weren’t worth the money or we wanted to make a change, we let them go. When someone no longer wanted to work for us for whatever reason, they left. In fact, there are people all over the conservative media world today, who at one time or another, used to write for or work for Right Wing News. My guess is that almost all of them are making far more money than they did working for us, but that’s how it’s supposed to work. We hired a lot of novices and bloggers, trained them, helped them get experience, and over time, that enabled them to get better-paying jobs. Near the end, as Right Wing News became one of the first organizations canceled by Facebook, we had to stop paying people wages. It wasn’t their fault. It was just that we could no longer make enough advertising money off of their efforts to pay their wages and make a profit.
A minimum wage turns this whole process on its head. It says to an employer and employee that they are legally NOT ALLOWED to work together for less than a certain amount, even if they want to do so. In fact, the purpose of the minimum wage initially was to keep white employers from hiring black workers:
The federal government got involved in setting wage levels in the 1930s and did so at the urging of unions that excluded blacks as members. During debates in Congress, lawmakers complained openly about the “superabundance” and “large aggregation of Negro labor” and cited complaints by whites of black Southerners moving north to take jobs.
As Congress increased the minimum wage periodically over the decades, these same arguments were put forward as a justification. When he was a U.S. senator from Massachusetts, John F. Kennedy backed minimum-wage hikes as a way of protecting New England industry. “Having on the market a rather large source of cheap labor depresses wages outside of that group, too—the wages of the white worker who has to compete,” he lectured an NAACP official at a hearing in 1957. “And when an employer can substitute a colored worker at a lower wage—and there are, as you pointed out, these hundreds of thousands looking for decent work—it affects the whole wage structure of an area, doesn’t it?”
In other words, it was a much more racist time when businesses generally preferred not to have black employees on the payroll. However, employers were still willing to hire black workers because they could get them cheaper than white employees. Unfortunately, the minimum wage took away the price advantage black employees had and if businesses had to choose between white and black employees at the same price, they generally preferred the white employees. Were the black Americans back then better off without jobs? No. Were the employers better off paying more for workers? No. Were consumers better off paying more than they should have for products? No, it was a lose/lose/lose for all three of those groups.
Today, the same general principles apply, but the way it plays out has changed. First of all, the numbers of people impacted are smaller. Depending on who you believe, only somewhere between 1 and 1.5% of all workers make minimum wage – and the lower number seems more likely given the post-COVID struggle to find workers. In fact, not so long ago in North Myrtle Beach, I was talking with the manager of my favorite restaurant, and he was complaining that they couldn’t get enough servers even though with tips, they were making something close to $35 per hour. So, when we’re talking about minimum wage workers, we’re almost entirely talking about young people just entering the workforce or alternately, people who bring so little to the table that they’re lucky to have a job at all. Obviously, neither of those groups of workers make ideal employees, but if the wage is low enough, it still makes sense for many businesses to hire them.
So, what happens when the minimum wage is raised? Well, businesses have to adjust. There are a number of ways they can do that. They may…
A) Leave the position empty.
B) Hire a better-quality employee and give him the work of two mediocre employees.
C) Spread the workload out to multiple employees.
D) Replace the worker with some type of automation or new equipment.
E) Hire people in another country to work remotely or move the business there.
F) Pay the mediocre worker more and pass the cost on to the public.
You may notice that a lot of these possible solutions will mean fewer jobs for new workers trying to get valuable experience and for the worst workers in our society, who are going to have trouble getting and holding jobs anywhere. In other words, the minimum wage makes it harder for one group to get the experience they need to move up and makes it more likely that the other group will end up on welfare. This may be good for the Democratic Party, which likes the idea of creating as many dependent people as possible, but it’s terrible for society. The employers pay more and lose, the customers pay more and lose, and a lot of people lose their jobs, so they lose as well. In fact, the only people that win are the worst employees in our society, who are so incompetent that they can’t do better than a minimum-wage job over the long term.
Of course, you could argue that if the minimum wage were raised high enough, it would impact a lot more workers.
So, for example, our national minimum wage is $7.25, but there are several cities with more competitive labor markets that have a minimum wage of more than $17 per hour. There are also always people incessantly pushing to raise the amount higher:
However, the higher we raise the minimum wage, the more we’ll be stymied by the same old problems. For example, if you look at a corporation like Burger King (which was the second place I ever worked) and ask, “What percentage of the workforce can generate enough value to be worth $25 per hour,” you’re going to find that it’s a tiny percentage of their workforce:
Even the managers aren’t making $25 an hour because that $54,835 per year probably represents 50-60 hours per week in a salaried position. In other words, if corporations like Burger King had to deal with a $25 an hour minimum wage, they’d either have to find a way to automate their businesses and get rid of most of their employees, leave the country, go out of business entirely, or massively inflate their prices to be able to pay those wages. This is why, in answer to the question in the title of the column, you can’t just raise the minimum wage to $1,000 and make everyone rich. If that happened, you’d either end up putting the country out of business or creating massive inflation via government decree – and that’s even before you consider the fact that if some barely functional goofs who can’t even make a chicken sandwich correctly at Burger King are making $1,000, then what do you think people with actual skills are going to demand? Personally, if the minimum wage was $1,000 per hour, I wouldn’t roll out of bed for less than $7,000 or $8,000 per hour. I’m not the only one who would feel that way either. Are you ready to pay your plumber $6,000 to show up? How does paying a personal trainer $3,500 per half-hour sound?
That may sound crazy, but it’s what the minimum wage does at all levels. It’s just that the minimum wage is currently low enough that it doesn’t impact a lot of people, so the effects are small enough that we don’t notice them. In other words, at a minimal level, the minimum wage has a minimal impact and thus, does minimum damage. However, the higher you raise the minimum wage, the higher prices and the unemployment rate will get. That’s why the minimum wage is such a bad idea. Letting employers and employees make their own voluntary choices about whether a job is worth it at a particular wage is a much better idea.