Do Businesses Create Jobs?

At a recent political rally, former Secretary of State Hillary Clinton emphatically implored the audience not to “let anybody tell you that it’s corporations and businesses that create jobs.” She went further by saying “don’t let anybody tell you that raising the minimum wage will kill jobs, they always say that.”

First and foremost, businesses obviously do create jobs but that point, no matter which side of the political argument one embraces, misses the point so widely that it is rendered virtually irrelevant. Simply creating jobs is not a valid end unto itself but rather a side effect of competitiveness and bringing valued utility and subsequent demand to the market. This is true of employing people in the same way that creating buildings or square footage within them are not valid ends unto themselves. Simply employing people for employment’s sake is a logical fallacy already long debunked by Bastiat’s Broken Window fallacy. Planned economies, which are fundamentally based on “broken window” logic, always fail to prove sustainable long-term, as there exists no legitimate demand for the product(s) and service(s) that bureaucracies forcibly provide in the name of “full” and/or “prosperous employment.”

And this segues to the next point. Clinton is right. ”They” always say that raising a minimum wage across-the-board results in a correlation of unemployment (including underemployment), precisely because it is a factual statement. The “they” in this case are not just economists that know what they are talking about, but indeed, the federal government itself acknowledged this reality when it wrote the so-called Fair Labor Standards Act of 1938. First mandating a federal minimum wage in America, Congress established a provision in this act for businesses to ignore the requirement altogether, so as not to curtail employment opportunities for the disabled:

The Secretary [of Labor], to the extent necessary to prevent curtailment of opportunities for employment, shall by regulation or order provide for the employment, under special certificates, of individuals… whose earning or productive capacity is impaired by age, physical or mental deficiency, or injury, at wages which are lower than the minimum wage (emphasis added).

If a minimum wage on its face did not adversely affect employment, and such suggestions were mere assertions worthy of general dismissal, why then would the government itself write in provisions to protect certain classes of people from these imaginary adverse outcomes? The answer is obvious but nonetheless fails to address why some groups are special enough to rate such protections while others are not. The government acknowledges in its own law that the appropriate and efficient way to address unemployment is to avoid a minimum wage by deferring to market exchanges, and thereby optimize employment rates and labor wages, but decides that only certain groups are eligible for these legal opportunities. I consequently posit that this law, as they so often are, is disingenuously named because what exactly is fair about banning some individuals from entering certain employment agreements while allowing others to do so? Is this not the very definition of labor discrimination?

 

Further, the vast majority of industries are not price inelastic to the extent that they can seamlessly and uniformly absorb higher wages (labor prices), whether minimum or not. If they were, wages would increase naturally through the forces of market competition for the skilled labor needed to answer that demand with respect to competitors’ abilities to do so. In point of fact, if the higher prices for the given products/services (needed to offset a raise in the minimum wage) could seamlessly be absorbed without resulting in a corresponding decline in demand, then surely these “evil” corporations would have already been charging those prices long before the government forced them to cyclically raise the wages in question. Indeed, forcing labor wages to increase at a rate outside of what the market naturally demands, and consequently can support, is an effective way to generate new and different technological competition to wage laborers.

But then, simply raising wages to a “livable” standard has never been the true goal of Big Government demagogues. Marginalization, and subsequent social unrest and government dependency, have largely been the true goals of these oligarchs. As Murray Rothbard pointed out,

Since the demand curve for any sort of labor (as for any factor of production) is set by the perceived marginal productivity of that albor, this means that the people who will be disemployed and devastated by this prohibition will be precisely the “marginal” (lowest wage) workers, e.g., blacks and teenagers, the very workers whom the advocates of the minimum wage are claiming to foster and protect.

In short, maintaining the status quo as a political bogeyman to help rally social fervor is the prime objective here, not true economic advancement for all.

On ethical and practical levels, a mandated minimum wage is exactly the same thing as criminalizing voluntary employment agreements. In other words, a minimum wage is another term for banning employment for certain individuals, typically the marginalized workers that need this lower-skilled work the most to expand their skillsets (most often the young and uneducated.) This is, again, most likely by design. This illegalized employment prevents said individuals from entering the job market altogether, and further prevents them from gaining and developing marketable skills needed to grow within that market over time. Indeed, “a low wage constitutes a competitive advantage for less-skilled workers that serves to protect them from competition from more-skilled workers.” With this option effectively removed, their only choice is to work illegally or to turn to government handouts to survive. Often the latter appears more attractive as it obviously requires less labor effort, but this option also fails to provide equivalent opportunities for professional development and fiscal independence and seems to perpetuate generational dependency.

A simple thought experiment should further reveal the illogic of Clinton’s perspective. If a minimum wage is not adversely correlative to unemployment, then why only raise the wage rate by a few dollars and cents every decade or so? Why not mandate the minimum wage rate for all American employees at $50,000/year or $25/hour? Why not more? Specifically, why stop with marginal increases? Rothbard again provides insight into the very political nature of the self-evident answer:

The fact is that [proponents of the minimum wage] have always been shrewd enough to stop their minimum-wage demands at the point where only marginal workers are affected, and where there is no danger of disemploying, for example, white adult male workers with union seniority [or whomever is politically precious at the moment.] When we see [for example] that the most ardent advocates of the minimum wage law have been the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), and that the concrete effect of the minimum wage laws has been to cripple the low-wage competition of the marginal workers as against higher-wage workers with union seniority, the true motivation of the agitation for the minimum wage becomes apparent.

Of course, this is not just a union issue nowadays. According to its proponents, the minimum wage is also supposed to be a boon to working families’ prosperity, again without any expectation of measurable adverse impact. However,

evidence from a large number of academic studies suggests that minimum wage increases don’t reduce poverty levels. Some workers lose jobs (high minimum wage states have among the highest unemployment rates); others have hours cut. The least-skilled get competed out of the jobs that remain (e.g., the minimum wage hits teenage employment hardest.)

Finally, ask yourself if Big Government is so magnanimous and effective compared to any private enterprise – be it in the context of business or otherwise – why then does everything the government do, from law to regulations, to policy enforcement and rulings of judgment, require the backing of state-wielded violence to carry out? Individuals and organizations eliminate violence on the free market by entering into voluntary exchanges that can then generally be dissolved at the discretion of either party. Consumers can withhold the exchange of their property for any reason whatever if they are not happy with the offered product/service, or can take their business to actual competitors (as is not always the case with government-backed crony capitalism, which seeks to eliminate real competition.)

Pepperdine University professor and economist Dr. George Riesman summed this overall discussion up best, in a way that is contextually applicable to Hillary Clinton and people of her political ilk:

It is necessary to know considerably more than this about economics before attempting to enact sweeping changes to economic policy, changes to be achieved by attempting to organize a mass movement that is based on nothing but a desire for economic improvement and no real knowledge whatever of how actually to achieve it (emphasis added.)

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  1. Minimum Wage Laws Ban Employment |

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