Minimum Wages – False Path to Utopia

grgptkToday’s presidential hopefuls from Bernie Sanders (avowed socialist) to Hillary Clinton (avowed modern progressive) to George Pataki (avowed conservative) as well as many others, support a federally mandated increase in the minimum wage. The only question to them is how much the next increase(s) should be.

Only about 3.9% of hourly paid workers actually earn at or slightly below the minimum wage so most people feel unaffected directly by such laws, perhaps contributing to the reason why they don’t give much thought as to whether government (either federal or at the individual state level) should be able to force a wage floor on private-sector businesses. Another contributing factor is that many Americans have succumbed to political and media conditioning that minimum wage laws and their periodic increases are a compassionate and proper function of government.

Progressive intellectuals and media robustly rebuke any opposition to minimum wage laws or increases to the minimum wage as uncaring and, further admonish any opposition from business management as, perish the thought, greedy. With that cover in place this topic sets up nicely for political exploitation. Politicians can, ostensibly, take a stand of compassionate improvement for the little guy and appear as righteous knights fighting business greed, all the while increasing their power and collecting large donations from support groups like labor unions indirectly benefitted by such laws.

The federal minimum wage was one of the grand desires of Franklin D. Roosevelt for his New Deal plan for increasing government power in its forward progress towards utopia. After some legislative and judicial tussles, passage was accomplished at the federal level in 1938 through the Fair Labor Standards Act. It was sold to the American people as a “fair” law for the little guy, and a way to reduce overall poverty.

Today, dismantling this government intrusion in the country’s economy is occasionally brought up, but only rarely meaningfully discussed, with virtually no serious challenge politically feasible. The minimum wage is, after all, settled law; the only occasional quibble is about the amount or the timing of increases.

There are reasons why the minimum wage doesn’t live up to its hype and is not necessary in a free economy. Furthermore, and more importantly, there are real reasons why these laws should be rejected by a free people.

Stated justifications not achieved

Pragmatically, setting and periodically increasing a wage floor results in hurting, or at best not helping the classes of people they are said to be designed to help: persons with little or no job skills or training and those in poverty. Meanwhile, forcing a minimum wage is shown to damage overall economic activity.

Unsurprisingly, teenagers are by far the highest percentage age group of workers with little or no skill or training. However, contrary to optimistic hopes, the minimum wage laws have not been found to have a positive impact on the overall employment rate for teenagers. In fact, they effectively shut-out the lower-skilled teens from the job market and thus increase unemployment for that group. Those positions that would have been filled by the lower-skilled teens are found, instead, to be filled by teens with higher skill levels because those persons have now become, justifiably, more commensurate in value to the higher pay. Consequently, lower-skilled teens, the persons typically applying for entry level positions, are the very workers hurt by the minimum wage scheme.

The positive impact on the poverty level as another eagerly hailed pretext for minimum wage laws is also rather illusory. Neither creating nor raising minimum wages have been shown to decrease the poverty rate according to a 2010 study in the Southern Economic Journal. That study shows that the minimum wage has a very “poor target efficiency” towards households at or below the poverty level and thus do not reduce the overall poverty rate. The poverty rate now is very close to what it was in 1967, after fifteen increases to the minimum wage (fluctuations lower and higher have of course occurred during those 48 years, but periods of lower rates cannot be directly correlated to increases in the minimum wage). As The Heritage Foundation reports, minimum wage workers are mostly young (ages 16-25) and over 68% live in households where the average annual income is already north of $65,000, well above poverty levels. Much research, including the study released by the Employment Policies Institute, explains that the minimum wage has the effect of lifting a few individual workers above the poverty level but on balance is offset by other low-wage earners being laid off or having their hours reduced due to the higher imposed costs on business, thereby lowering their household income to that below the poverty level.

Lower economic activity has also been shown to be a consequence of mandated minimum wages. Plausibly, an artificially established minimum wage floor, especially set relatively high for entry level, low-skilled positions, would seem to have a deleterious effect on the hiring ability of potential employers for those levels and, accordingly, diminish overall economic activity. That premise is confirmed in a 2013 study by Texas A&M economists Jonathan Meer and Jeremy West released by the National Bureau of Economic Research in which they examine the facets of “employment dynamics” and conclude that “the minimum wage significantly reduces net job growth, and, in particular, new job creation.”

Constitutional considerations

As an enumerated power delegated from the people to any of the three branches of the Federal Government, the Constitution does not list the establishment of a minimum wage as such a power. Our Founders would probably be shocked to find government meddling in the private-sector economy in such ways. Nevertheless, that has not stopped an activist Supreme Court, through constitutional challenges to minimum wage laws, from sustaining this encroachment by the Federal Government, or by the individual state legislatures.

However, as we have seen throughout its history, the Supreme Court is not an infallible body of arbiters. We shall remember such cases as Dred Scott (60 U.S. 393) where black citizens were ruled not having the same rights as white citizens; Korematsu v. United States (323 U.S. 214) where the wholesale internment of American Japanese without probable cause was ruled constitutional, and; Nebbia v. New York (291 U.S. 502) where a citizen was declared no less than an enemy of the state for selling milk a few cents lower than that dictated by the New York Milk Control Board. And on and on (with many possible choices, including the recent contortionist rulings failing to strike down the Affordable Care Act).

The Supreme Court in United States v. Darby (312 U.S. 100) ruled constitutional the Fair Labor Standards Act of 1938 which provides for the Feds setting a minimum wage. In the Court’s written opinion, the commerce clause of the Constitution was distortedly interpreted as providing cover for the law. Citing Supreme Court case West Coast Hotel Co v. Parrish (300 U.S. 379) in their decision, the Court said, “[I]t is no longer open to question that the fixing of a minimum wage is within the legislative power…” In West Coast Hotel the Court said that liberty (as in the liberty of parties to freely contract and set terms mutually agreeable such as a wage) does not preclude the state from imposing regulations “in the interests of the community.” Really? What regulations? And who is to decide what is ‘in the interests of the community’? Should we rely on the same political bodies that gave us Dred Scott, or domestic concentration camps for American citizens; or on the New York Milk Control Board?

In the four-judge dissent in West Coast Hotel, Supreme Court Justice Sutherland discussed the minimum wage law and its interference in the liberty of contract and said, “The feature of this statute which, perhaps more than any other, puts upon it the stamp of invalidity is that it exacts from the employer an arbitrary payment for a purpose and upon a basis having no causal connection with his business, or the contract, or the work the employee engages to do.” Furthermore, “The law takes account of the necessities of only one party to the contract. It ignores the necessities of the employer by compelling him to pay not less than a certain sum not only whether the employee is capable of earning it, but irrespective of the ability of his business to sustain the burden…” It is noteworthy that the dissent in this case made a stronger, more logically objective argument sustaining individual liberty and contra the minimum wage mandate, than the Court made in favor of the law.

Philosophically

Philosophically, the important question regarding a government mandated minimum wage is whether a free country, such as the United States was designed to be, should succumb to this socialistic (as in social engineering) and statist-elite type of such government interference. Such laws as the minimum wage transfer more power to government, aiding in its incessant expanse. Through its added power, government and its elites decree that they know best as to what the minimum level of wages should be rather than allowing the free-market capitalist system to determine that level.

The capitalist employer-employee relationship is a contractual relationship. Allowing the private-sector market conditions to determine the minimum wage at which a worker will work, and an employer will pay, is a basic and fair tenet to equal-party positions in establishing the employment contract. In such freely determined contracts between free parties, a worker is not forced to contract with an employer with whom he is in disagreement with the proposed contract terms, including wages. Likewise, under free-market conditions, an employer is not bound to enter into a contract with terms it is in disagreement with, such as a mandated minimum wage set at a level incommensurate with the level of skill or training required for the job, or set at a level so high he is precluded from hiring as he sees fit.

But government has decided it knows best and interjects itself into the employer-employee contractual relationship. This government interference in the economy is antithetical to the American precept of individual liberty. The three branches of the Federal Government established as a check-and-balance system are charged with protecting that individual-liberty principle but have collectively failed to do so through legislatively forcing minimum wages upon individuals in business and judicially negating constitutional challenges to those edicts. When the branches of government conspire to force authoritarian controls on the people instead of working independently as a proper check-and-balance system, there is tyranny.

Through years of indoctrination by the progressives and elites, many Americans speciously accept that government has the legitimate authority to involve itself in the private-sector economy and to meddle in the private lives of citizens in ways never intended. Each such government usurpation accumulates its impact with myriad other encroachments resulting in a steady, cumulative loss of individual liberty.

It is a false hope to believe that utopia will ever be attained through the progressive-statist controls and intrusions upon the American people. The only result will be the escalating loss of individual liberty. Our political representatives must reverse these imperious controls and intrusions, including the minimum wage laws, and allow the American people to live in freedom as originally intended.

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