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Often the discussion over minimum wage is clouded by not just a difference of opinion, but a difference in the correct focus. The Left believes that every person’s labor should be priced related to the laborer's needs. The Right’s focus is the role of prices of labor in the labor marketplace and the value of that labor to the employer.
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Many people look at the minimum wage laws as only affecting employers. While it does affect employers, one also needs to realize it is also forbidding by law, some people from selling their labor. If the value to the employer is less than the minimum wage, the potential employee dropping the price of their labor under the minimum is forbidden. Thus, the EMPLOYEE is forbidden by law from working.
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Some employees productivity is low. These employees bring little worth to the company. Ultimately the customer needs to find worth in a product or service to turn over their money. The customer's money is the only money there is to pay the employee. If the employee cuts five yards of grass and the customer pays $50 for a 10-hour day, that $50 is all the money the employer can pay the employee. If the minimum wage is $7.35 an hour, the employee is forbidden by law from selling their labor.
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This is so elementary, yet so important. Forgive the kindergarten explanation, but the whole free-market case is built on this. Once understood, minimum wage laws cannot be justified. Any trade that both sides agree with makes both sides better. The minimum wage restricts the trade of labor that would make both sides better-off, thus does harm.
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A simple example: The going wholesale price for a widget is $5. There are many people making widgets for company X. Because of greater experience and education, some workers can produce ten widgets an hour and the inexperienced and the less educated employees can produce only two widgets an hour. Clearly, the ten widget employees are creating greater value for the company because company X sells $500 of widgets for his 10-hour day, while the two widget employee’s labors produce only $100 for his 10 hours.
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Given that company X has $2.5 worth of overhead and supplies per widget, the laborer cost cannot top $2.5 per widget. Given that employers pay about 30% over salary in ‘other’ employee expenses, we will work on a minimum wage of $10 an hour (employers cost). The labor market clearly does not allow all these employees to be paid the same. The most productive would seek out other opportunities if their pay were the same as those producing much less.
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The ten widgets an hour employee is producing $25 an hour while the two widgets an hour guy is producing only $5 an hour. Statistics show that every three months, an employee’s productivity increases by one widget per hour until they max out at about ten widgets an hour. Under minimum wage laws, of $10 an hour (employer cost), people could not be hired until they could produce at least four widgets an hour.
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If the employer has a hard time finding people that could start with a four-widget productivity, it is likely they would invest in more equipment that would allow the more experienced workers to double their productivity, although now the overhead moves to $3.25 per widget, thus leaving only $1.75 per widget for labor. The elimination of many labor hours is often from less educated and less experienced employees.
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Some people state that if the government eliminated the minimum wage, employers would offer only $1 a day. This low wage is very foolish thinking in that nobody would accept that offer. Employers must compete with all employers for employees. Over time, the employers paying more will have on average more experienced, more responsible, more dedicated, more educated and overall better employees. Better employees are more productive and will ultimately be more profitable.
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The Left focuses on the needs of the employee by stating: ‘a person cannot live on minimum wage.’ The Left indicates that the employee's needs are or should be the determining factor in their level of pay. Let’s say two labors each produced seven widgets per hour, but one employee had to support a family and the other just ‘spending money’ because he is still living with parents. Should the family man get paid more money because he has a higher need? If higher pay for greater need were a requirement, employers would not hire people with more significant needs.
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This argument the Left makes usually stumps most on the right. The Left is still wrong and the Right still right; however, without a quick explanation, well thought out and well delivered, the Left often wins. A quick response is that there is no additional money. More importantly, there are no additional products produced. Either the employee hours were cut to compensate, the business has less money or customers paid higher costs, thus leaving less money in their pockets. The same amount of money and the same amount of products are in the system.
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First, the government requiring a transaction to meet certain levels means fewer contracts will be agreed to, thus reducing economic activity. Often, the labor budget is pretty firm. A substantial change in labor costs will require significant business model adjustments, including shutting down. If a company has $500,000 budgeted for labor and the labor rate per hour increases, the option is often reducing hours of labor they purchase from employees. If the price of goods goes up as a result of the increased minimum wage, customers would have less money in their hands after shopping.
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After watching a minimum wage protest, I wrote:
I wept, hearing an interview with a young single mother making minimum wage was truly sad. However, I wept over what she said. She did not use these words; however, she wanted lawmakers to FORBID by law, her, my teenagers, and millions of others from selling their labor for what their labor is worth. There is no slavery in this country, and if she wanted to set a minimum wage for herself, she is more than welcome to negotiate for the $15 an hour and not accept the job for less.
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Fast food companies could pay $15 to much more competent employees that could do the work of 2 minimum wage workers. They could buy more automated machines that require fewer employees or they could go out of business. If the minimum wage were raised to double the current rate, a high percentage of those close to the minimum wage would lose their job because lawmakers choose to protect these people by forbidding them to work.
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There are those that lack skill, experience, responsibility, ability, wisdom, self-control or a clean criminal record. Employers would naturally hire people that do not lack these essential fundamental components. Potential employees lacking these benefits need the option to outbid others. I am offended by the ignorance of those that think employers should base their pay scale based on the needs of the employee instead of the worth to the employer or based on the role of prices in the labor market.
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