The Fallacy of the Minimum Wage

Democrats, having very little in the way of useful ideas, pushed through the Fair Minimum Wage Act of 2007. Many people will tout this as a victory for low wage workers, but the whole idea is seriously flawed. As a result of the legislation the minimum wage will rise to $5.85 an hour on July 24, 2007, $6.55 an hour on July 24, 2008, and $7.25 an hour on July 24, 2009. So now $7.25 an hour is "fair". Why not $10 an hour? Or $12 an hour? $50 an hour? Now that would really help some low income Americans (I wouldn't mind that myself)! How is a fair wage determined? How do you fairly determine the price of anything? Simple, through free market negotiation. Employers will offer employees what they are willing to pay, and a potential employee is free refuse or ask for more. Democrats however have decided to use the power of government to force employers to pay more for employees than they are worth. But "Greedy corporations will never pay what's fair to the employees, they will shortchange everyone!" you may say. Then why don't engineers make minimum wage? Baseball players? Even many liberal arts majors pull down more than minimum wage! In fact only 1.7 million US workers make the minimum wage or less (and many of those are waiters and waitresses who make more than minimum wage when you include tips), which is a very tiny percentage of workers. "Well ok," you may say, "but what harm does it do? Let's put a little extra money in the pockets of these workers!" Ok let's take they hypothetical example of a small business that employs 20 minimum wage workers, and now that business in the summer of 2009 has to pay it's minimum wage workers 7.25 an hour instead of the current minimum wage (at least until tomorrow anyway) of $5.15 an hour. That translates to an extra $2.10 an hour for each employee, and assuming fifty two forty hour work weeks that would equal $87,360 a year in extra salary for those employees. Now let's say that business had planned to hire an IT person to streamline the operation of it's computers and networks, or maybe a bookkeeper to handle some accounting. The business now wouldn't have enough money to do so, and that relatively high wage job would be lost. The business would also lose any productivity gains that it would've realized as a result of that employee, which ironically probably would've increased the size of the business and it's demand for labor which may have led to an increase in how much the business would be willing to pay it's workers. In fact in many tight labor markets today the minimum wage is a non-issue as nobody is willing to work for the minimum wage anyway so the effective "minimum wage" is much higher. So I have no problem with seeing the wages of lower income individuals rising, I would just like to see them earn it through market forces rather than using government to force their wages to rise. I don't doubt that low income workers work very hard, but jobs that require mostly physical labor just don't have a lot of value in today's economy. Maybe government should focus on increasing people's skills so that they can actually deserve a higher wage, rather than artificially increasing their pay, then everyone will be better off.

Introduction

I wanted to write a blog on subjects I am interested in and hopefully stimulate some meaningful debate. So a little background on myself, I am a former software engineer and now a real estate developer, just turned 34, living in Central Florida. Politically I am a moderate, and I tend to vote Republican because I view the Republican party as the lesser of two evils (more on that later). I have two children, one 7 months old and one 4 years old. As far as my religion, I am an agnostic, and my wife and parents are Hindu. Through this blog I hope to explain why both political parties are awful and why the country is so polarized, why free markets beat government intervention, and why religion is the root of all evil. Easy enough, huh? :)