There continues to be a great deal of debate over the economic impact of the federal minimum wage. Does it serve as a drag because it raises firms’ costs or do businesses experience higher sales as a result of the rise in their customers’ income? Obviously, if you consider only one side of that equation or the other–as most amateur analysts do–you reach a biased conclusion. The real question is, what is the net impact after all the relevant relationships are considered?
Fortunately, this has already been addressed in myriad professional, peer-reviewed studies using both mathematical modeling and statistical evidence. And there appears to be something of a consensus: changes in the minimum wage have little to no impact on employment (see for example: Why Does the Minimum Wage Have No Discernible Effect on Employment?). Apparently, the change in cost is largely offset by the change in demand and other factors. A little boring, perhaps, but it’s always a cause for celebration in my discipline when we get anything close to an agreement!
But if that is true, then what is the point of raising or lowering it? Those in the latter camp (Michelle Bachman, for example) believe that eliminating the federal minimum wage would cause an increase in the number of job offers perhaps sufficient to “virtually wipe out unemployment completely” (Would Killing the Minimum Wage Help?). However, as shown above, there is no evidence to support this. Besides that, when in US economic history has a spike in wages been the reason for a rise in unemployment? Never. We are therefore unlikely to solve any economic woes by lowering wages, minimum or otherwise.
Those arguing for an increase, like Bernie Sanders (I-VT) and other members of Congress, are on firmer scientific ground because they are not basing their recommendation on the assumption that raising the minimum wage would boost employment (Sanders Introduces Bill for $15-an-Hour Minimum Wage). Rather, they are only suggesting that such a revision would allow the law to do what it was designed to do in the first place: protect the least powerful members of our society from predation.
The goal of the minimum wage law is not to raise or lower unemployment, nor should it be because evidence suggests that it really can’t. Its purpose is social. It is meant, just like many other laws, to protect those who might not have the power or resources be able to protect themselves. And there’s little doubt who is the in need of protection in this context.
Comedian Chris Rock said once on Saturday Night Live, “You know what that means when someone pays you minimum wage? You know what your boss was trying to say? ‘Hey if I could pay you less, I would, but it’s against the law.’”
Even Adam Smith, the father of capitalism wrote in favor of protecting the worker from exploitation (see Adam Smith and Collective Bargaining for a discussion of Smith’s view):
What are the common wages of labour, depends everywhere upon the contract usually made between those two parties, whose interests are by no means the same. The workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labour.
...
It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, a merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.
Of course, some are more in need of protection than others. Minimum wage laws are not oriented towards college professors, Major League Baseball players, or certified public accountants. Instead, they are meant to help those much more rudimentary job skills who will be, for obvious reasons, concentrated among the poor, minorities, and women. Those in favor of raising the federal minimum wage are arguing that no one should need public assistance on top of their regular employment just to make ends meet.
And so while it does not make sense to argue for or against changes in the minimum wage based on its employment impact, it does from the standpoint of protecting the powerless. Those who have not been as lucky as the rest of us in terms of the opportunities presented to them should not have to live a life of de facto indentured servitude. Chris Rock and Adam Smith agree. I do, too.
Also on Forbes:
