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Why not a $100 per hour minimum wage?

By Dan Nagasaki and Glenn Doi
web posted February 18, 2013

President Obama announced that he's supporting a federal, inflation-adjusted minimum wage increase from $7.25 to $9.00 per hour.  Even if he settles for $8 per hour, this seems irresponsible in light of our stubbornly slow economic recovery.  But if the government is going to raise the minimum wage, why stop at such a low wage rate?  If higher minimum wages are so wonderful, why don't we just raise the minimum wage to $50 or $100 per hour?   I'll answer that and conclude with why I believe the assumption that employees need to be protected from employers, and the resulting legislation which places the primary responsibility for a successful employer-employee relationship on the employer, makes for less productive employees, and results in employees who stay and stagnate, instead of moving on to other jobs and responsibilities to earn more money, respect, or job satisfaction.

Liberal politicians often refer to economic studies showing that increases in taxes or minimum wages have little or no negative effect on the economy.  Those who have no understanding of economics tend to over-rely on this type of information.  Studies that show the benefits of higher taxes (increased minimum wages are really a tax increase on employers, who then pass on the increased costs to consumers) have a built-in flaw. The problem being that we don't really know what the economic statistics would have looked like if the higher taxes or higher minimum wages had not been implemented.

So let's look at this logically instead.  Let's suppose that no minimum wage laws ever existed, and Congress suddenly passed a law pegging the minimum wage at one cent per hour.  Would the law have any effect?  Well, of course not, because no sane person in the United States is willing to work for one cent per hour.  You can make more than that standing on a street corner with your hand out.  What about 10 cents per hour or even $1 per hour?  Again, the answer is no. But at some point, the minimum wage will start to have an effect.

For the sake of argument, let's say that this figure is $7 per hour.  Some employers will begin outsourcing certain jobs or tasks to other U.S. companies or overseas operations.  Others will begin to reduce work hours or employees.  Others will be less generous to existing employees in terms of pay raises or benefits.  Others will begin relying more on mechanical or technological methods, because long-term, the expense of these methods now makes sense in the face of rising wages.  Others will be less willing to hire those with no job experience or skills (students and the undereducated poor for example), because these workers, at least for a while, are not very productive and certainly aren't worth the higher wages, benefits, and risk of lawsuit.  The effects aren't always immediately apparent, but long-term, a high enough minimum wage level will start to have a negative effect on jobs.

Let's say we decide to eliminate poverty and set the minimum wage at $100 per hour.  Will this have a negative effect on employment and on the economy?  Of course it will.  Even economists who manufacture studies defending minimum wage legislation will agree. - They may be political whores, but they're not stupid.  So how do politicians and liberal economists figure out a fair minimum wage level?  What the politicians don't tell the public is that minimum wage legislation is a game based on first estimating the real minimum wage that full-time employees are willing to work for (the reservation wage), and then setting the legal minimum wage somewhere near this level.  Continuing with our example, let's suppose that at $7 per hour, some adverse effects are there, but not very noticeable, but at $8 per hour, the effects are likely to be very noticeable, based on economic projections.  Politicians will settle for a minimum wage at around $7 per hour.  Years later, the real minimum wage that full-time employees are now willing to work for is $9 per hour. The politicians then pass a law setting the minimum wage at around $9 per hour. And so on.

Politicians don't pass legislation setting the minimum wage at $50 or $100 per hour because they know that as long as they don't go too much over the reservation wage, entry-level jobs may be lost, but the overall economy won't be noticeably hurt, supportive politicians look good, their economically-responsible political opponents look mean and selfish, and these politicians can go back to their naïve constituents and tell them that they're looking out for the "little guy."  Ignorance is bliss.  These "little guys" who unknowingly suffer decreased entry-level job opportunities may be largely Hispanic or Black, but who cares?  They tend not to vote, and when they do, they vote Democrat. 

Why are many staunch conservatives, against setting any national minimum wage?  In addition to the economic arguments against it, and whether they can articulate it or not - in their gut, they believe that it's unfair and it's wrong.  Most people will never take on the risks associated with starting their own business, so it may be difficult to empathize with an owner.  But citizens should have a right to hire whomever they want, at whatever price they want, and they should also have the right to fire anyone for any reason, with very few conditions.  Unfair?  You have these rights if you are "hiring" or "firing" a babysitter, gardener, plumber, car mechanic, or homebuilder.  But for some reason, if you decide to form a company, most people believe you should lose these rights.  The employer–employee relationship should be a win-win situation for both parties.  The employer has a job that needs to be done in return for money, and the potential employee is willing to do that job for an agreed upon amount of money. Both parties have a need that must be fulfilled, and both parties have something the other desires.  If not, they should look elsewhere.

Many people regard having a job as a "right." It's not.  [I'm not referring here to contractual obligations agreed to by both the employer and employee.]  Some people believe that by paying taxes, they are in effect paying insurance, so that if hard times hit, they'll be protected by the government. I understand this, but it's not the same as viewing a job as a "right" on the same order as freedom of speech.

This concluding paragraph may seem very harsh and sound very foreign to those who have been trained to run to a lawyer, politician, or some advocacy group at the first sign of discomfort:  Being hired for a job is like any other business transaction.  The fact that you're good, work hard, or that a job is important to you both emotionally and financially doesn't mean you have a "right" to a job or certain job conditions.  Similarly, the fact that your marriage means a lot to you or that you're the most wonderful husband or wife doesn't mean that you have a "right" to remain a spouse or that your spouse must meet "your" conditions.  Yes, life is unfair.  But you'll be much happier in your personal and professional life if you adopt the attitude that nobody "owes" you anything, and that all relationships, business or personal, involve both parties contributing to, and benefiting from that relationship.  If you're unhappy, you shouldn't just ask, "What should I be getting out of this," but "How necessary am I to the other party?"  If you're sure that you're being treated unfairly, have the courage to go where you'll be appreciated (it's like taking your business to another store or restaurant).  But if no one else is willing to accept your conditions (money, benefits, love, attention) then maybe you aren't really worth what you thought you were, and you need to either accept reality or improve yourself so that you're worth more. ESR

Dan Nagasaki is the author of a book for teens and young adults: The Beginner's Guide To Conservative Politics. Glenn Doi is a real estate broker in Los Angeles.





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