A friend* of mine sent me a text message today with a headline informing me that the Senate had rejected the minimum wage hike. Suspecting what she thought of this development and how she would react to my own thoughts on it, I answered noncommittally, simply remarking that I was surprised they couldn’t pass it; after all, Democrats have the majority now, right? The conversation then turned into a debate about the merits of an increase in the minimum wage. As I disagreed with her, I was promptly informed that I was a disgusting, selfish, and bad person who thought he knew everything.
I already have an opinion about the minimum wage, but it’s not a particularly strongly held one, so I decided to examine it in depth here. Obviously, something in my current stance must be horribly off, because I’m not only wrong, but wrong enough that a friend of mine felt that it made me a horrible person. Whatever my error was, it also so glaring that she felt it was useless to explain it to me. As a result, I’ve taken a bit of time to explore the issue as neutrally as I could.
At the first glance, the idea of the minimum wage is very alluring. We know that there is a lot of poverty in the nation, and that some people living in poverty are actually working very hard to try to make ends meet. If we raised the minimum amount that employers were allowed to pay an employee, then, logically, the people working would make more money, and therefore be able to afford to make ends meet easier.
The problem with that is that while it’s (relatively) easy to change the dollar amount that workers are paid, it is much more difficult to change the value that society places on the work that they do. As an example, if society values a manhour of manning the front desk at a movie theater to be worth about the price of a movie ticket, and we tell the movie theater they must pay more for the person running the front desk, then it is almost a certainty that they will subsequently raise the price of the movie ticket**. This process will repeat itself throughout the economy, and the new “minimum wage” is essentially worth no more than the old one.
One of the reasons we use money is that it simplifies trade immensely. Bartering is a bit of a headache. If you want goods and/or services, but the person who provides those things doesn’t actually want any of the things you have, you’re forced to make a trade with an intermediary (or two or three or …) to get items you can trade for something you want. Instead, we use money as a stand in, allowing us to simply put a numeric value on the worth of various items, and simplifying everything for everyone.
Taken as a whole, a free market allows us to compare what various things are worth to society. A new comic book is worth approximately the same amount as a couple of bottles of soda. A laptop (depending on its configuration) might be worth approximately 1/10th of a car. An hour of “unskilled” labor is worth approximately the same amount as a new paperback book. A lot of people forget that the numeric amount of something’s value doesn’t really mean anything in and of itself. It only means something in the context of what it can be traded for.
Whether an hour of running a cash register at a small town store should be worth more to our society than it is is a question that is open for debate, but even if the answer is yes, changing the value that our society places on that service is a much more complicated process than simply telling the employer that they need to pay the employee more money.
* That should possibly read former friend, given the tone that the discussion took. I find that disturbing, but I will not claim to believe something I do not simply to preserve a friendship, even though it means a lot to me.
** Assume a best case scenario, where the process above never compounds itself (if multiple people in the life of a consumer product get raises, its effective cost, and therefore its price, will raise more than once). In this case, the people receiving the raise are effectively earning the same purchasing power they were before, but people who were making more than the minimum wage have essentially lost purchasing power. So, it helps those earning minimum wage only by hurting those who are making more than minimum wage. In a less-than-best-case scenario, everyone is hurt, and the people receiving the minimum wage “raise” are almost certainly going to be hurt the most, because they are the individuals most likely to be purchasing cheaper items that are most affected by the price hike.