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Repeal the Minimum Wage

December 27, 2005

Tags Big GovernmentInterventionism

Good intentions, when guided by error and ignorance, may have
undesirable consequences. There is no better example than minimum wage
legislation.

It means to raise the wages
and improve the living conditions of poor workers but actually condemns
many to chronic unemployment. It forcefully raises the costs of
unskilled and inexperienced labor and thereby lifts it right out of the
labor market. Yet, many politicians who neither own nor manage a
business and do not employ such labor never tire of lamenting and
deploring low wages and promising to raise the wage minimum by law and
regulation.

The official Federal
minimum presently stands at $5.15 an hour; the actual minimum is much
higher. No employer can overlook the mandated fringe benefits which he
is forced to pay above the minimum. There are employer Social Security
taxes, unemployment and workers' compensation levies, and paid holidays.

In some industries the
workers' compensation levy alone may amount to more than one-half of
the wages paid. And if the employer should carry his workers' health
insurance costs, employment costs may be double the minimum rate. If
eager members of Congress should be successful in raising the minimum
by two or three dollars an hour, many young people may be condemned to
permanent unemployment.

The rate of unemployment
tends to be directly proportional to the excess of labor costs over
productivity. In many European countries with official minimum wages of
more than $10 an hour, the rate of unemployment is measured in
double-digit rates although governments spend massive amounts on
make-work projects. Some victims readily submit to their fate and
endure a life of idleness and bare subsistence. Many learn to labor in
black markets where goods are produced and services are rendered in
violation of minimum wage edicts and other regulations and controls.
But most victims are young people with little training and know-how who
tend to react angrily and violently. Their rate of unemployment
actually amounts to multiples of the official rate. And if society
should be divided ethnically, youth training and productivity may be
lower yet and its rate of unemployment may approach 100 percent. Such a
labor situation is laden with anger and fury which not only breeds high
crime rates but also, at any time, may turn to violence by mobs of
unemployed youth. The recent riots of French youth clearly resembled
the riots of unemployed Americans in Watts in 1965, in San Francisco in
1966, Detroit and Baltimore in 1967, Chicago and Cleveland in 1968, and
in Los Angeles in 1992.

The situation is most
dangerous and explosive in cities and states with state minimums even
higher than those set by the Federal government. Minimum wage
legislation had its beginning in states long before there was a New
Deal that made the Federal government the primary labor legislator and
regulator. State governments continue to lead the way in raising labor
costs; state rates of unemployment tend to indicate the political
strength of the minimum wage movement.

Few economists have the
courage to point to labor legislation and regulation as the very cause
of mass unemployment. A few who muster the courage may emphasize the
infinite demand for labor but are ever mindful that its costs set
limits to the demand. Few employers, if any, knowingly buy labor that
costs more than it produces, just as few workers are likely to purchase
consumer goods which, in their judgment, cost more than they are worth.
Yet, economists who dare to point to labor legislation and regulation
as important causes of mass unemployment are criticized, denounced,
condemned, and vilified as callous and ruthless agents and spokesmen of
greedy employers.

 The Politics of Unemployment When jobs are against the law: $22

Politicians may draw applause
and win an election with numerous wage promises and other assurances no
matter how unrealistic they may be. Some politicians undoubtedly are
Machiavellians who are fully aware of the evil consequences of such
policies but continue to promise them in the hope of garnering the
votes. They may point to new employment programs such as public works,
neighborhood youth corps, job corps, and other benefit corps. Some
politicians may be candid and sincere but cannot be reached with
economic reasoning. They are utterly unaware of inexorable economic
principles but very eloquent in all matters of politics and law. With
their eyes glued on the wants and needs of workers and their families
subsisting on minimum wages, they place their trust in economic laws
and regulations and in the power of the police to enforce them.

To alleviate minimum-wage
unemployment is to restore freedom in the labor market; it would permit
the cost of labor to readjust to labor productivity and offer
employment to every young man and woman willing and ready to work. A
free labor market would welcome young people, which not only would
exhort and restore the spirit of work but also improve labor skill and
know-how. The labor productivity of American youth soon would rise and
exceed the ominous minimum levels that presently condemn millions to
idleness. Freedom has a thousand charms even in the labor market.

___________________________

Hans F. Sennholz, Professor Emeritus Grove City College is an Adjunct Scholar of the Mises Institute. See also A tribute to Professor Sennholz by Joseph Salerno, Book: The Underground Economy (1984),  Quarterly Journal of Austrian Economics, Vol. 5, No. 4, dedicated to Hans Sennholz, Daily Article archive of articles by Sennholz, Austrian Economics Newsletter interview with Hans Sennholz, and Lew Rockwell's essay on Sennholz. Comment on the blog.


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