The Vanity of the Minimum Wage

by Jul 20, 2016

The recent popularity for governments at various levels to increase the minimum wage is overwhelming evidence of the immense economic ignorance that plagues our country. Not only that, such policies actually oppress the poor among us and ought, on that basis alone, to motivate Christians to vocally oppose such measures. Regrettably, we often find Christians actively supporting such rules. In doing so they falsely believe that their efforts to impose these regulations are charitable.

This needs some explanation of course. But, if we understand some basic economic principles we are not likely to be led astray by those who aim to manipulate the political system to their own advantage while imposing costs on the poor. The very first principle that must be understood is that governments cannot decree the price of any good or service. In the course of voluntary trade amongst the participants of markets going prices arise. These prices reflect the willingness of buyers and sellers to trade with one another in mutually beneficial ways. The same is true of labor markets. Going wage rates in an unhindered market reflect the willingness of workers to sell their labor services to employers and of the employers to hire such workers to produce the products they aim to sell in the market place. As long as the employee is willing to work at whatever wage is being paid he cannot say that he is being exploited. Nevertheless, that is what the proponents of minimum wage laws would have you believe.

Who are the chief proponents of such laws? It’s the unions. Labor unions provide the funding to promote higher minimum wages. However, there’s not a single union member in the country that makes minimum wage. They all earn wages well above the minimum. They would have you believe that they do this because they care about the plight of low wage earners in the market, but the truth is they care about themselves and aim to price such low wage workers out of the market in order to increase their own wage rates. In effect, they aim to oppress the poor.

A simple example will illustrate the process. Suppose I want a fence built and I am taking bids from various fence builders. I take the first bid from a skilled fence builder who happens to be a member of the American Fence Builder’s Union. According to his bid he would agree to build the fence at the rate of $25 per hour for X number of hours. The second bid I take is from two young, but relatively inexperienced young men. According to their bid they would agree to build the fence for the same number of hours but would do the job together if I paid each of them $10 per hour. If I believe I can get my fence built either way, who would I hire? The obvious answer is the two young men as it would save me $5 per hour in labor cost.

Now suppose that the union worker is back at the union hall bemoaning the fact that these two young men had secured another fence building job thus horning in on their business. As the union membership reflects upon this situation, a particularly clever member suggests a scheme by which to put these young fellows out of work. They start a political campaign to raise the minimum wage. To gain political support for the measure the campaign would focus on would be employers of fence builders and label them exploiters for paying low skilled workers too little. Various inflammatory statements would be used. For instance, “Can you believe the greed of people like Cleveland and his ilk who exploit the poor by paying them only $10 per hour. A young man cannot possibly live on such petty wages! Something should be done! We should force him to pay such workers $15 per hour.”

If there is sufficient economic ignorance this political campaign will be effective because no one is really against low skilled workers earning a higher wage. However, once passed into law, who would I hire to build the fence if I still wanted to build it? Obviously, I would hire the skilled union worker. Only now when I go back to him to negotiate the contract he will tell me that he will only do the job for $28 per hour. The truth is that it is not my greed that is exploitative, but the greed of the union members. The truth is we all want to pay the lowest prices for the things we buy and sell the things we possess for the highest prices. That’s only natural. That the young men were willing to work for less but are prohibited from doing so by law is the very nature of exploitation since it prohibits them from engaging in work that would add to their skill level thus increasing their future wage rate. We are warned in the Proverbs not to act without knowledge. Proverbs 19:2 tells us that, “Desire without knowledge is not good, and whoever makes haste with his feet misses his way.” Therefore, do not be deceived by deceivers and act on emotion alone.

Paul Cleveland

Boundary Stone was started by Dr. Paul Cleveland. Working as a professor for over 35 years has allowed him to study and think deeply about issues of political economy. He has discovered ways to communicate these sometimes illusive concepts to today's students, often through story telling, which makes understanding these principles more accessible to all of us.

1 Comment

  1. David P.B. Price, Sr.

    I agree. Raising the mandatory minimum wage actually costs jobs; look to Seattle. I also thought that many union contract wages were based on a percentage or dollar amount above the legal minimum wage. Great explanation Paul. We do many things as Christians where we mean well; but we are actually doing more harm than good.


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