Time to repeal the minimum wage.
This might not sound like something any candidate for elected office would dare say. But it would improve the economic situation of the least well-off Americans - those living in Michigan in particular, a state that has a minimum wage in excess of the federal standard (and a higher unemployment rate than all but two other states). Repeal also would restore one of our fundamental liberties—the right to own our labor.
A predominant characteristic of the market system is voluntary exchange. You cannot force me to purchase your goods or your labor. And I cannot force you to buy anything from me. As Adam Smith wrote more than 200 years ago:
But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favor, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.
In a market economy a business cannot pay its labor more than the value of the product that the laborer adds. If by hiring you a company can produce an extra 10 widgets per hour and widgets sell for $1 each, then it cannot pay you $11 per hour or it will incur losses and go out of business.
Notice that the amount a business owner can pay for labor depends on two things: 1) the productivity of the labor and 2) the price that consumers are willing to pay for the product. So, if you want to increase the wages of poor people you must do one of two things—make the labor more productive or increase the price that consumers are willing to pay for the product.
If we could make the poor better off by simply increasing the minimum wage, why not a minimum wage of $1000 per hour?
The U.S. unemployment rate among16-19 year olds is a staggering 25 percent. In Michigan, 28 percent. That's a recipe for frustrated youths. Often they end up in the underground economy, selling drugs.
It has been estimated that nearly half of Detroit's adult population is functionally illiterate. Michigan's minimum wage keeps these unskilled workers from gaining employment and is partly to blame for the city's high unemployment.
If there were no minimum wage, however, then producers could hire the unskilled and train them. Those of us old enough to remember gas station attendants who washed car windows also remember that many a young person got their first job pumping gas. They learned important job skills that improved their productivity and let them move on to higher-paying occupations.
The minimum wage increases of the last 50 years have eliminated these and other entry level jobs and kept large number of the unskilled dependent upon government for subsistence.
Aside from the harsh unintended consequences, there is also a principle of individual liberty at stake. If you are willing to pay me for my labor at the rate we agree upon, then why should the government tell me that I cannot sell you my labor? Why should a state or local government be able to tell me that I cannot work because I can't produce $7.25 or $7.40 an hour worth of goods and services? Individual freedom depends on the right to one's own labor.
It's time that we restored one of our fundamental freedoms by ending the minimum wage.
Dr. Gary L. Wolfram is the William E. Simon Professor in Economics and Public Policy at Hillsdale College.
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