Some years back I discussed the demonstrably false assertion that the State successfully mitigates unemployment and the antithetical nature of minimum wage laws and full employment in the broader economy.
Results-based analysis demonstrates clearly enough that the government generally is not particularly successful at eliminating any significantly serious “problems,” likely owing at least in large part to the reality that the State has no inherent interest in doing so. After all, there is no profit in a cure but only in a treatment, as the saying famously goes. Specific to this context, minimum wage laws observably drive unemployment in the industries or sectors they are levied upon, as openly acknowledged in Section 214(b)(4)(B)(ii) (p. 44) of the Fair Labor Standards Act of 1938.
Even California Governor Jerry Brown, when signing into law that state’s recent incremented minimum wage hike to $15/hour, admitted that “economically, minimum wages may not make sense” and that “there won’t be a lot of jobs” because of this legislation. Indeed. This outcome is self-evident in the fact that policymakers never propose raising the minimum “living” wage to $50K or $75K or higher; obviously such a hike would adversely impact a large swath of the workforce population and so it is never seriously tabled for consideration. And of course, this begs the question as to why only marginal hikes, which consequently adversely affect marginal employees, are ever pursued. But more on that shortly.
Minimum wage legislation retards employment through a number of general mechanisms, a few of which non-exhaustively follow.
Firstly, the minimum wage attracts greater competition to the labor force in question, which in many cases pits lower-skilled workers – again, those the regulations are supposedly meant to help – into competition with higher-skilled ones. Such an influx of prospective employees may result in more qualified/flexible/adaptable/generally desirable candidates entering the labor pool for employers to pull from, who now have to pay an artificial premium for that labor and likely wish to get a greater “bang for their buck.” Pre-legislation employees may not be able to match these skills and consequently can be displaced.
Second, when the labor costs in a given industry increase to the point where technological alternatives become fiscally viable, companies often employ such technology to replace the more expensive human labor1. Indeed, Wendy’s and McDonald’s have already begun introducing such labor-saving technologies to their franchises, in part as a response to these artificially inflated wage rates proliferating across the nation.
Next, labor wages necessarily increase the prices of the offered good(s) or service(s) affected, which typically results in a corresponding suppression of consumer demand, necessitating a reduction in the impacted labor force to compensate for this dip in demand.
Also, businesses may choose to shutter their doors altogether, if the imposed costs are not practicably recoupable from the market, or they may choose to exit one jurisdiction for a more favorable one elsewhere.
Lastly, when the State artificially mandates inflated outlays to a specific expenditure that the market does not naturally support, it necessarily inhibits the efficient flow of capital to ventures, technologies, and even other labor efforts that are naturally supported by the market. If the market already supported a minimum wage of $15/hour (for example) across all industries, it would already be the norm (in some cases it is, but this is certainly not so across all industries). When a given business is inherently dealing with limited fiscal resources, a mandate to “invest” in inflated labor costs necessitates a tradeoff with foregone opportunities, such as unrealized investments in potential competitive advantages, products/services that the consumers actually desire more, and/or expansions in the scope/scale of the company’s offerings.
Perhaps most onerous, however, is that minimum wages do not drive unemployment generally. They tend to disproportionately affect the very labor demographics these wage laws are purportedly intended to help in the first place – namely young people and minorities. Marginalizing the same workforce demographic over and over again is the observable outcome, if not the outright desire. This is, of course, a byproduct of minimum wage laws’ cyclical nature – perhaps even why they are cyclically revisited. Is it not strange that such thresholds are only ever raised to just the right point where the same generally marginalized demographics are displaced from the workforce generation after generation?
When politicians publicly admit that their laws bring about the exact opposite effect to their constituents as promised, and especially when the laws themselves acknowledge such adverse outcomes, one might question if the politicians in question are competent, at the least. I leave it up to the reader to decide if the oligarchy is simply acting ignorantly but with good intentions, or is purposefully mandating that certain folks remain economically marginalized and consequently dependent upon their cyclical “treatment,” vice a true “cure.”
In either case, sooner or later people are going to have to reconcile their decision making with the fact that there is no such thing as a free lunch.
- To be fair, free markets certainly allow for innovations and entrepreneurial effort that inevitably lead to labor-saving technological advancements as well. However, there is a gulf of difference, both ethically and from an efficient economics perspective, between markets based on free cooperation and willing production and exchange and a forced employment ban that the State brings about through minimum wage laws.