Monday, July 23, 2018

Abolish the Minimum Wage! (Paper)

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Thesis Statement: The minimum wage is destructive to current employees, potential employees, and consumers, because it stifles potential employers, lowers actual income, leads to layoffs, and raises prices. It should be abolished.   

1.      Introduction
1.      Framing the Issue/Argument
2.      Thesis
2.      Argument
1.      The Economic Argument
1.      The Extremist Objection
2.      The Rational Argument (Supply/Demand)
3.      The Empirical Evidence
2.      The Moral Argument
3.      Conclusion

In a debate on the issue of the minimum wage, the economist Russell Roberts, a fellow at the Hoover Institution, told this story:  
In September of 2011, the Governor of American Samoa traveled seven thousand miles to testify for 5 minutes in front of Congress. He begged Congress to stop increasing the minimum wage in American Samoa, a process that had begun in 2007 and was scheduled to increase until it reached the U.S. minimum of $7.25. In 2009 employment on American Samoa fell 19%. That’s because employment in the tuna canning industry, which was third of their jobs, had fallen 55%. The governor of American Samoa…blamed that collapse on the minimum wage.” (Abolish the Minimum Wage, Youtube, 2013)

 The issue of the minimum wage is a deeply personal issue because it affects people directly. It affects how much money they earn, which affects how they can live their lives. It has been assumed in contemporary society that the federally mandated minimum wage, enacted in 1938, is necessary to provide a safety net for the lower paid workers in American society. Anyone who even suggests lowering, or abolishing this mandate, is called extreme, stupid, or uncaring to the poor. This paper will contend that both economically and morally, abolishing the minimum wage allows for the free market to equalize the supply and demand curves and provide the most amount of people with the best jobs they can acquire. In the end, abolishing the minimum wage is the most loving and caring thing to do for American workers. 
            There are two basic sides to the minimum wage argument: the moral argument and the economic argument. The economic argument says that it doesn’t cost the economy much to have a minimum wage, so why not have it? These people would argue that the implementation of the minimum wage, or the increase of it, would have very little effect on employment, while at the same time raising wages for millions of workers. We will rebut this argument first. 
 The second argument is stronger and is worth entertaining: This argument would possibly concede the economic argument against a minimum wage but argue that it is worth slowing the overall economy/causing higher unemployment by imposing higher wage floors because we should take care of those poorest among us. We respond to this argument as well. 
 The crux of the argument really does rest on this debated issue: Does employment suffer from the minimum wage? And if so, are the gains in labor worth the disemployment caused by that same policy? (Goldfarb 1974, 261) We will spend most of our time looking at this issue since it is the crux of the minimum wage debate. 
            The minimum wage is destructive to current employees, prospective employees, and consumers, because it stifles potential employers, lowers actual income, leads to layoffs, and raises prices. It should be abolished.   
The Economic Argument
            Opponents of abolishing the MW typically argue that such a measure would be “extreme” Indeed, oftentimes this seems to be their main objection to it! (Minimum Wage Debate, Youtube, 2013). They argue that the MW has been in place for 80-odd years, and our economy is fine! Why would we get rid of it? But appeals to the stability of the economy under a minimum wage are spurious because our position only argues that things would be even better than they are without a MW! As for the extremist argument, firstly, time does not a good argument make. The U.S. sanctioned slavery for hundreds of years, even enshrining it into the Constitution, before abolishing it in the 19th century. When the MW was implemented at the state level, it was declared unconstitutional by the supreme court! (Adkins vs. Children’s Hospital, 1923) and again struck down in 1933 for similar reasons. Ever since settlers began coming to America in the 17th century, they had worked with no social safety programs at all, much less a minimum wage, and some countries still don’t have minimum wages (Hong Kong and New Zealand.) Both countries (especially Hong Kong) have prospered because of their economic freedoms, which include their unregulated labor standards. The extremist might better belong to the side wanting to impose or increase the MW, not the other way around. when you take into account the full breadth of American history. However! This argument is largely irrelevant for both sides, the question is, what does the data show?
            On a purely rational level, the law of supply and demand would indicate that when the price of a commodity is artificially raised relative to the stable demand, then the demand will decrease, which harms the business and the employers. When the commodity is labor, then the labor is worked less, laid off, or looked for in cheaper areas. Thomas Sowell, one of the best economists alive today, says as much: 
“by the simplest and most basic economics, price artificial raised tends to cause more to be supplied and less to be demanded than when prices are left to be determined by the free market. The result is a surplus, whether the price that is set artificially high is that of farm produce or labor.” (Basic Economics, page 153).  
            Empirically, this has been confirmed as well. In the decades after the passage of the Fair Labor Standards Act (1938), which introduced the minimum wage, the data seemed to suggest that the MW was hurting employment for low-skilled workers: “Much of this research [suggested] that increases in the wage floor were having adverse effects on the employment opportunities of low-skilled workers.” (Neumark and Wascher, 1).  In a huge landmark study commissioned in the 1970’s but only completed in 1981 (“The most exhaustive inquiry ever undertaken into the issues surrounding that Act [FLSA] since it’s inception.”) (Labor Commission, letter of transmission) a group of economists sought to compile a consensus of all other studies and they too found that employment was considerably affected, citing that a 10% rise in the MW would cause disemployment of 1-3% of teenage workers, most of whom were earning the MW. According to The Bureau of Labor Statistics, in June of 2018, 12.5 percent of all American unemployed were teenagers, the vast majority of whom earn the minimum wage or slightly higher. Per the same source, there are 6.6 million people unemployed, so that equals 825,000 unemployed teenagers. (U.S. Department of Labor, 2018) If we plug in the Labor Commission Study’s algorithm, there could be 8,250-24,750 more teenagers unemployed if the minimum wage were raised by just 10%. If the popular movement known as the “Fight for 15” got their way, and the minimum wage was increased from $7.25 to just double ($14.50) we could possibly expect to see an additional 247,000 teen and low-wage workers laid off, bringing the total low-wage unemployment to 1,072,000! This data only considers the direct bearing it has on teenage workers, but the effects would also be disastrous for anyone earning anywhere from $7.25 to $14.50, since they would now have to be paid more (or, as we contend, nothing at all, leading to an even higher unemployment rate!) Since the 1990 ’s, interest in the minimum wage began to increase again, and David Neumark and William Wascher, both economists at the prestigious National Bureau of Economic Research, published another summary-style study in 2006 that summarized the data collected since the publication of the Minimum Wage Study Commission in 1981. They too found that adjusting for the best data, “Almost all [studies] point to negative employment effects, both for the United States as well as for many other countries.” (Neumark and Wascher, Abstract) One problem with the analysis of some studies that gather data on employment in certain industries (such as fast food) is that they fail to measure how things would be if there were NO minimum wage (a price control) in the market. Another problem with studies that survey businesses before and then again after a MW increase (see Card and Krugeur 1994) is that it doesn’t consider the businesses that fail due to the increased wage–shops will deal with the higher wage until they can’t survive anymore. As the economist George Sigler once quipped, using these methods you could survey all WWII survivors and prove that not a single soldier died in WWII! (Basic Economics, page 155). 

To conclude, the majority of studies and an even higher majority of good studies point to the disemployment effects of a minimum wage. Basically, it is better to have a low paying job than no job, and the minimum wage will cause many workers to have no job at all, though it will, in the short term, raise wages for the remaining workers who aren’t fired. 

The Moral Argument
            One side of the moral argument is tied to the principles of a free society, and thus simply will not make sense to those who typically are on the Left. The Left usually thinks in immediate, pragmatic terms, rather than in principled ones. For instance, a conservative would hesitate to implement social safety net programs due to the principle that it is wrong to take money from one person and give it to another, while the liberal person would only think in terms of “helping the poor”. The moral argument against the minimum wage is drafted in a similar vein: It is immoral to get between a consensual relationship between an employee and an employer about the employee's wage. The government simply overreaches its bounds of governance here. It is ironic that the Left wants the government to get out of the marriage business (get out of my bedroom!) but is fine with the government reaching in between the employer/employee relationship. In addition, when we consider the before mentioned discussions on the supply/demand laws, any time an artificial price floor is put in place, it will cause a shortage or a surplus. Basic economic theory and empirical evidence strongly concur that when you raise the price of labor, it will shut out workers who aren ’t worth that higher labor price. Is it moral to cause the unemployment of millions of low-skilled workers who can’t find a job now? The examples become more obvious when we consider a point Ben Shapiro, an author and political analyst, made in a debate on the proposed $15/hour MW in Seattle. (KTTH $15/Hour Minimum Wage Debate) He asked the proponents why they didn’t fight for $30/hour, or $100/hour? Why not? Wouldn't it be better to pay workers even more? The obvious answer is that it would be disastrous for workers because anyone who isn’t worth $30/hour (millions of workers) wouldn’t be able to find jobs! This is highly immoral. The same thing occurs to some extent when any artificial price floor is imposed, though the effects would be minimal (even inconsequential) at numbers such as $2/hour, etc. 

            The typical reaction to anyone suggesting a cut, or an abolition of the minimum wage is “Why? Hasn’t it worked for so long?” Or “Workers’ wages would decrease! Don’t you care about the poor?” The response to these questions is that of course we care about the poor, we just prefer policies that actually help them, rather than policies that only seem to help them. Having a minimum wage is a good way to get points from your constituents, or to seem to have given workers a raise with no cost, but in reality the minimum wage prices many low-skilled, young, and minority workers out of the labor market entirely, which is a wage of zero dollars/hour.

Works Cited

Industrial Relations Research Association (1974). The Policy Content of Qualitative Minimum                    Wage Research.

Minimum Wage Study Commision (1981). Final Report of the Minimum Wage Study                                 Commission.

Neumark, D. and Wascher, W. (2006). Minimum Wages and Employment: A Review of  Evidence From the New Minimum Wage Research. National Bureau of Economic Research.

Sowell, T. (2000). Basic Economics. 1st ed. Washington: The Perseus Books Group.

U.S. Department of Labor (2018). The Employment SituationJune 2018.

YouTube. (2013). Abolish the Minimum Wage. [online] Available at:                watch?v=84t4pTUDFGo [Accessed 14 Jul. 2018].

YouTube. (2014). AM 770 KTTH $15 Minimum Wage Debate. [online] Available at: https://             [Accessed 17 Jul. 2018].

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