By David R. Iglesias*
If business owners were hoping to catch a break in 2021 after having been completely victimized by government lockdown procedures and left-wing rioting, they may want to brace themselves for another turbulent year as the Biden administration begins its reign in the White House. While revealing his new $1.9 trillion plan for combatting covid-19, Biden included raising the federal minimum wage to $15 an hour—one of the oldest and most debated topics in the subject of economics.
The minimum wage debate, although having been refuted time and time again, continues to be brought up by progressives and those who tend to lack a basic understanding of economics. While there’s nothing wrong about lacking any knowledge in economics, Rothbard put it best,
It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.1
It becomes even more irresponsible when we are talking about attempting to force business owners to raise their costs of production after having seen the enormous hit they took last year. The Washington Post reported that more than a hundred thousand small businesses closed forever back in May of 2020. In September, Yelp provided data showing that 60 percent of business closures were permanent—60 percent meaning 97,966 businesses. There’s no doubt that the remaining small businesses saw a major hit in both revenue and profits as they were forced by government officials to scale back operating capacity, increase costs for sanitization equipment, adapt to changes in consumer behavior during the covid-19 outbreak, or simply remain closed for extended periods of time. Now, many of those same politicians want to significantly raise the total cost of production for these struggling businesses by increasing their cost of labor to a minimum of $15 an hour.
Trust the Science
Even on its face, this is a bad idea. In fact, since everybody now believes in “following the science,” over 70 percent of economists surveyed in 2019 agreed that the federal minimum wage should not be raised to $15. Only 6 percent believe that “is a very efficient means to target individuals in poverty.” However, we don’t need to only rely on popular opinion to understand that this is a terrible idea. If one were to imagine a supply and demand curve, one could easily see that as the cost of labor increases, the quantity demanded decreases while the quantity supplied (or those seeking a job) increases. The equilibrium point is where the two curves cross. Placing a price floor doesn’t change the curves themselves but simply creates a new point at which the supply of labor does not meet the demand for labor: the gap between those points is the unemployment created by the wage policy. Anybody who has taken an econ 101 course has seen this.
It is frequently argued that minimum wage laws raise wages—this may be true for some, i.e., those who keep their jobs, but it is untrue for those who either become unemployed or are never able to be employed in the first place. In other words, the workers for whom the wage increase applies gain at the cost of those who lose out on their wages entirely. Another common scenario that the untrained eye misses is the change in hours that employees work. While they may get a raise in hourly wages, there is no guarantee that workers will still see an increase in total wages earned, i.e., in their actual paychecks. Back in January of 2019, an article on the U.S. News website made this very point:
MORE THAN three-quarters of restaurants in New York City have reduced employee hours since the minimum wage was increased to $15 per hour.
In a survey by The NYC Hospitality Alliance, 76.5 percent of full-service restaurant respondents said they had to reduce employee hours and 36 percent said they eliminated jobs in 2018 in response to the mandated wage increase.
People aren’t like blocks of wood that can simply be chipped away at by certain policies. They respond and react to situations as they happen. Whether the jobs become automated or hours are decreased, businesses will adapt so they can keep from operating at a loss and going under.
Biden’s plan to raise the federal minimum wage to $15 across the country is also treating the entire nation as if it were one homogenous entity. It treats states like California the same as states like Idaho. One-size-fits-all policies tend to be disastrous and dangerous, because they fail to take into account the countless factors that distinguish one individual or culture from another. Politicians in Washington, DC, are so disconnected with those living in states on the other side of the country. Trying to dictate how people do business with each other in a place that you spend little to no time in is absurd.
The Minimum Wage Law is Antithetical to Current Left-Wing Rhetoric
Additionally, the minimum wage law goes against some major points of concern that are found within current left-wing rhetoric. With the recent purging of Donald Trump along with many who fall even slightly to the right of Bernie Sanders or Alexandria Ocasio-Cortez from social media, it’s become fashionable for progressives and left-wing types to argue that Facebook and Twitter are “private companies so they can do what they want” against those who have been outraged by such deplatforming. It’s safe to say that nobody should expect this newly adopted principle of private property to be truly embraced by the Left and those who are happy to see the silencing of their enemies. However, despite the insincerity of those who are wielding this point, it does stand true that if we really believe in private property and self-ownership, it must therefore be acceptable for business owners to set the wages and rules for employment with their businesses. Just like Facebook can remove somebody from their platform, an employer should be allowed to hire whomever at whatever wage they both agree to.
Another rhetorical point is that of institutional racism. Justification for the left-wing destruction of cities and private businesses came from it being an act of antiracism. If we want to really stamp out racism and racist policies set forth by the government, minimum wage laws have to go. Thanks to the work of two indispensable economists, Thomas Sowell and the late, great Walter E. Williams, minimum wage laws have been exposed as some of the most racist and sinister policies. A popular tool used by white labor unions, minimum wage laws once helped keep black laborers out of jobs, protecting white workers. Those who have been the most negatively impacted by minimum wage laws—whether unintentionally or not—are young black teens.
A third issue that is continually brought up by progressives is the growing disparity between the rich and the poor. It is constantly pointed out that wealth is being transferred from the working class to the power elites. Ironically, they miss who really stands to benefit from raising the minimum wage: big businesses like Amazon and Google who can afford to pay such high wages. Massively successful firms are oftentimes at a greater advantage over smaller ones, because they are more capable of paying higher wages or offering more benefits. If the government demands that all employees be legally guaranteed a $15 minimum wage, small businesses like restaurants are going take more of a blow than corporations like Amazon. This will put small businesses out of the marketplace, leaving only the big corporations to reap all the profits. If Biden goes through with his plan to federally mandate a minimum wage of $15, he will be showing small business owners that he either doesn’t have the slightest idea how disastrous his policies will be for them or that he simply doesn’t care.
- 1.Matthew McCaffrey, “Rothbard on Economic Ignorance,” Mises Wire, Oct. 13, 2015, https://mises.org/wire/rothbard-economic-ignorance.
Author: David R. Iglesias
Source: This article was published by the MISES Institute