Eleven states and the District of Columbia now have plans for a minimum wage of $9 an hour or more. In New York’s case the figure of $9 will be reached in January 2016. While supporters of higher minimum wages suggest this is an unalloyed good thing, they do not actually believe this. If there were no costs associated with a higher minimum wage, why should New York have to wait until 2016? And why stop at $9? DC plans to hit $11.50 in a few years. But why not $50? Or $100?
It is surely obvious that raising the minimum wage this high would have costs. But setting a minimum wage at any level has costs. Any minimum wage requires compulsory unemployment for people whose skills are less valuable than the level set.
It is a truism that any transaction in a free market only takes place if it benefits both parties. If you offer work at $8 an hour it is because the work you are purchasing is worth more $8 an hour to you. If someone accepts work at that rate it is because the money is worth more than the time to that person.
Aha, you may respond, but the power to negotiate may not be equal. Someone only accepts work at $8 an hour if she or he has no choice. (As an aside, Common Sense rejects the idea that someone has no choice. You are speaking of limited choices. But even the armed robber who demands “your money or your life?” is offering you a choice). Let us accept the point that people are unlikely to accept demanding work for low wages unless their alternatives are worse – such as starving to death. But it remains the case that $8 an hour remains better – for that person - than not having a job.
It is hard to see how you make people better off by reducing their choices which is, self-evidently, what you do when you make work for pay of less than $9 an hour illegal. Worse, people only accept $8 an hour if it is their preferred choice. So you are not merely taking away an alternative but taking away their best choice.
Of course, there is a range of prices that a business is willing to pay for any given piece of labor. An employer currently paying $8.75 per hour may well be willing to go to $9. People just below the minimum may well get a pay rise. If the level is only raised in small increments then most of the people affected will generally get a small rise. Hardly any will be fired. From a politician’s point of view this is a win. Some people will be grateful. The problem comes with the jobs on $8 an hour, $7.50, that will now never be offered or will be outsourced to India. But the people who would have accepted these jobs have no idea that they have lost out.
The result is that a small number of people have a concentrated interest in supporting a higher minimum wage. They know this, and vote accordingly. A larger number lose out, but are unaware of the potential jobs that were never offered. And another group gets to feel good about supporting higher wages for (some) people who are less well-off than they are.
Quentin Langley is a Senior Lecturer in Marketing at the University of Bedfordshire Business School as well as a freelance columnist published in the UK and all parts of the US. He blogs on social media and crisis communications at brandjacknews.com
Filed under: U.S. Politics 
