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God bless Cuomo and de Blasio

  • Minimum Wage
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07/23/2015

The state of New York has voted to raise the hourly minimum wage from $8.75 to $15 following fast food workers' protests. Governor Andrew Cuomo and New York City mayor Bill de Blasio and their families will pitch in the additional $6.25 per hour to help support low-wage workers in the fast food industry. "This is just the beginning. We will not stop until we reach true economic justice," Cuomo said. "As much as fast food workers need and deserve a raise - and we know they do - we must ensure that every worker gets a living wage," de Blasio filled in.

Well, not really. The state will raise the minimum wage, but Cuomo and de Blasio do not expect to foot the bill. Instead, they're happy to sign the dotted line because they are on the receiving end. The "raise" effectively buys them a lot of votes using other people's (and corporations') money. For this reason, it is no surprise that Cuomo considers the vote "one of the really great days of my administration."

It may very well be the case that, in Cuomo's words, "You cannot live and support a family on $18,000 a year in the state of New York, period." But it should be even harder on an income of zero - and that's the obvious and expected outcome for a lot of the future's fast food workers. They will not get the chance to employment and income they otherwise would have. We'll probably see more engineers, software engineers and the like employed in fast food to develop and provide service on the machines that replace manual labor. Progressive rhetoric and feelings aside, this conclusion is undeniable.

It is not as easy as saying the prohibition of a greater chunk of low-income labor (which is really what is meant by "raising the minimum wage") will cause unemployment, however. It will, compared to what otherwise would be. But this does not imply that the current minimum wage in any sense is without effect or that it represents equilibrium. Whereas the economic logic shows that a minimum wage set above the market wage will cause comparative employment by prohibiting low-productivity employment, we're not dealing with a free market here. At all.

Suppose the market wage is higher than the $8.75 mandated by law. All else equal, this will have no effect. But this supposes a somewhat free market with effective cross-market arbitrage, low or non-existent artificial barriers to entry, and market prices. Is this the case in the Empire State? Hardly. Insiders, both politically and economically, benefit from regulations that make it costlier for potential competitors to enter the market.

This is a strong reason why WalMart Corporation benefits from setting a standard wage higher than the mandated. Competitors won't be able to afford the higher wage, and the media (and customers) will punish them for not being as "generous" as WalMart. And as a result, WalMart's profits will not be threatened by competition in the foreseeable future. For the same reason, automobile manufacturers could keep out competitors by paying outrageously high salaries to their workers, establish laws requiring dealerships for selling cars, and so on.

The fact is that corporations, while being taxed and regulated themselves, benefit from all kinds of regulation for their competition-restricting effect, and therefore reap profits higher than would otherwise be the case. It is the logic of policy-induced imperfect competition. The fast food chains in New York benefit from government-mandated health regulations, "free" roads, and from being able to bid for politicians to enact preferred policies. Their power, influence, and size in society would all be smaller in a freed market where the insiders would not be able to free-ride on regulations.

It is therefore possible that, but impossible to figure out whether, $8.75 is higher or lower than the free market wage. It is equally possible that the net result of regulation is that the corporations benefit from paying workers lower than their marginal value product. This is "thanks" to all non-wage regulation, which effectively keeps potential competitors from exploiting the wage gap and therefore enable corporations to keep paying less than the market would require. In this sense, there may very well be injustice through exploitation in the "market."

As usual, the introduction of coercion and force (a state) in the market meddles with prices and resource allocation, causes imbalances and inefficiences (waste), and fuels malinvestment.

The way to make things right is not to mandate higher payment through policy, of course, but to get rid of all regulation. The best would be to get rid of all of it at once so that the necessary correction through redistribution of resources is as quick and painless as possible.

The suffering of and injustice brought to the fast food workers in New York and elsewhere is not actually caused by corporations. Corporations have no powers, or even much influence, unless they've been granted such by the State. In a free market, corporations would be subjected to the sovereign will of consumers, as Mises taught. In a state economy, however, corporations may very well come out on top.

The outrageous stunt by Cuomo and de Blasio in New York only strengthens the ties between economic and political insiders, and therefore the grip of the corporatist, fascist state on society. The rest of us, the outsiders, are on the losing side. We will pick up the tab by paying higher prices, getting less service, and perhaps losing our jobs. The greatest losers of all, as likely as it is unfortunate, are those working in the fast food industry.

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Contact Per Bylund

Per Bylund is assistant professor of entrepreneurship & Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University. Website: PerBylund.com.

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