The ignorance of the minimum wage.

The minimum wage makes poor people poorer, and so does the opposite of what the people who believe in it think that it does. This populist belief, that the government can make people wealthier, simply by passing a law commanding that their employer should pay them more is an example of successful populism. By populism I mean a destructive and immoral idea that feels right, but given a moments rational thought we can see how absurd the notion is. Most of the people who believe in the minimum wage are well meaning people, who think that it actually helps the poor. This means that there is reason for hope. Peoples’ motivations generally are good, but they may lack the facilities for critical thought, and so have been fooled by this illusionary notion. In this article I would like to walk through, step by step, what happens when a minimum wage law is applied, so that more people may be free from this ignorance.

The minimum wage prohibits low paid jobs from existing. By extension, those people who can only get low paid jobs are now permanently unemployed. The fallacy is that the minimum wage gives low paid people a pay rise, up to some basic minimum. In reality, they are more likely to be made redundant than get a pay rise. The reason for this is because the minimum wage is just government price fixing, it doesn’t alter valuations.

What is value? Why are some things valuable and other things are not? I would suggest that value is a perception or an opinion. I may value some personal possession highly, whilst you may see it as junk. Price fixing, however, is when the government forces a certain price on the market by law. Fixing prices does not change valuations. I will draw out a simple example.

Lets say the government fixes the price of apples to be $10 each. So now, by law, every single apple must be sold for at least $10, and anyone caught selling one for less is in legal trouble. But who would buy an apple for $10? Almost nobody would, because we all know that an apple is worth 10 cents, not $10. The government can fix the price, but they cannot reach into our minds and change our perception of reality, they cannot change how we value things. We will always be honest with ourselves when considering how much something is worth before we buy. If apples were prohibitively expensive none would be sold, we would learn to live without apples and the apple market would collapse.

Lets imagine a certain hypothetical person; the useless lazy slob. This is the guy who left school with no qualifications, has no motivation, never shows up on time and whose only interest is video games (I’m sure we all know someone like this). The value of this guys labor isn’t worth very much to other people in society, and that’s the unfortunate truth. The government can fix prices, and say that you are not allowed to pay him less than the $15 minimum wage, but who will knowingly pay more for something than it’s worth? Just as no one will buy an apple for $10, no one will buy this guys labor for $15. Perhaps someone would employ him for $12 or maybe $10, but at $15 his labor isn’t worth it. I wouldn’t knowingly pay more for something than I thought it was worth, and I doubt you would either. And so, the low skilled guy simply has no job, rather than the low paying job he could have had. The minimum wage would require that we lie to ourselves in some strange way, pretending that something is worth more that really we know it is. And to what extent we are successful in lying to ourselves, we would have simply put ourselves in a loss making position, paying more for something that its real worth.

The effect of the minimum wage is to ban low paid, crappy jobs from being offered. This harms the people who can only get those kind of jobs. The minimum wage bans exactly the kind of jobs that the poor use to get by on. It takes people who could have had a shit job, and gives them no job. It takes people already in a bad position in life, and makes it worse. No poverty is alleviated with this stupidity, it is created. And the poverty is created on the poor, the very people that the proponents of the minimum wage think that they are helping. It would be hilarious, if it weren’t so tragic. To think that we can solve the problem of poverty by banning shitty jobs is absurd.

There are many reasons why a persons labor may not be worth very much to others. They may be young with no experience, they may be a new immigrant that doesn’t yet speak the local language competently, they may be starting again in a new profession or they may simply just be an unintelligent person who struggles with reading and writing. To discriminate against these people, the low skilled, is terrible. The minimum wage sets a minimum level of skill that you must already have before you are allowed any job. If the minimum wage is $15, then the government is effectively saying “You must be able to find someone who is willing to give you at least $15 per hour for your labor, before you are allowed to have any kind of job.” And if you can’t, if you unhappily find that the combination of your skills, knowledge and work ethic, everything that gives your labor value, is not worth at least $15 to someone, then you aren’t allowed to have any job at all. This places people at the bottom of society in a poverty trap, the familiar catch twenty-two position that many of us know, where, if I can’t get a job how can I get the experience necessary to be offered a job.

The argument in favor of the minimum wage is always emotional, never rational. “How would you like to live on a low wage?”, screams the socialist politician. “Don’t you care about the poor, about humanity?”, pleads the well meaning, but economically ignorant, do-gooder. Whether or not the minimum wage actually helps or harms poor people isn’t a consideration. It’s just assumed to work, and so if you are against it, then you are some kind of greedy capitalist who cares nothing for the suffering of others.

I have outlined here, briefly, the economic argument against the minimum wage, and this argument stands on it’s own. There is also a moral, or ethical argument against the minimum wage that is equally compelling, and will present this in my next piece.

To those of us who are genuinely concerned by the welfare of others, and also crucially understand the basic economics required to see the fallacy of this silly idea, my message to you is that we should speak out more, and not be afraid to explain the truth to people. You may face emotional reactions, as is often the case when you challenge peoples’ ideas. You will certainly face the accusation that you don’t care about people, that you are greedy or selfish. I truly believe that people can be enlightened out of this harmful ignorance, but I fear that this destructive idea has spread so wide now, that patience and a calm temperament will be essential in deprogramming people of this populism.

Bayon