As Fox New recently reported,
“President Obama, in the first of potentially many executive actions tied to his State of the Union address, will unilaterally increase the minimum wage for workers under new federal contracts to $10.10 an hour, from $7.25, in an effort to build momentum for a minimum wage hike for all Americans.”
Now, according to Newton’s third law, for every action there is an equal and opposite reaction. Logically, we could also assume that for every political action there is an equal and opposite social reaction, at least in this case. And the introduction of the minimum wage cannot produce a positive reaction, according to the laws of macroeconomics. Minimum wage is all about good intentions; one can see the moral imperative behind the concept, but nonetheless: the path to hell is paved with good intentions.
The (bad) misconception that lies behind the only apparently good idea of minimum wage is that employees are systematically being exploited by their employers, and that there is no exception to the rule. Or, if you wish, “that employment is an exploitive relationship and that business owners will never voluntarily raise the wages of their workers. Businesses, we are told, must be coerced into paying workers what they deserve, and only politicians know what this is,” as Roger Koopman brilliantly put it back in 1988.
However, all appearances to the contrary notwithstanding, the fact that government cannot produce more wealth is pretty straightforward. And for anybody who has successfully passed ninth grade it should be a no-brainer. The bigger is the economic pie, the better off the workers of a given economy. The problem is that only private investments can make the pie bigger. All the state can do is imposing taxes, regulate, control and consume what private investors produce at their own risk.
And the fact is: the whole concept of minimum wage goes against solid economic reasoning. Besides, if this could really work, then why not pass a law to raise the minimum wage to 30 dollars per-hour, instead of just 10? Well, the reason why Obama doesn’t do that lies in the fact that you can only raise lower wages to a certain amount of dollars per-hour, and not a penny more. Some could argue that this is at least something and something is better than nothing. But the truth is: sometimes even nothing is better than something.
Allow me to explain. Let’s say that there is a certain guy who wants to learn a certain entry-level job. Let’s call this guy Joe and let’s say he wants to learn the art of flipping burgers at Burger King. Now, let’s also provide Joe with a minimum amount of work experience: let’s say that he just dropped out from high-school, in fact. There is certainly a good number of people that could identify with our Average Joe out there. Now, potential employers – most probably – would not be willing to pay our Joe a great amount of money, given the fact that the guy needs to learn how to properly do his job in order to become “a proper employee”. And that means that, given a minimum wage restriction which goes beyond 10 dollars per-hour, Joe would – most likely – not be able to work.
And there’s more. Let’s say that a certain number of employers were willing to pay a certain number of Average Joes 7.25 dollars for the unqualified jobs they were doing. With the introduction of the minimum wage regulation – most likely – these employers will find it hard to correspond to the same amount of employees 10.10 dollars per-hour for the same amount of work. And there is a good chance that, notwithstanding their will, such employers will have to cut on workers instead of raise the amount of money they pay for the same amount of job that their employees get done every hour. And this will most probably result in more layoffs. Once again: it’s not rocket science.
Not surprisingly, it’s always in the midst of economic turmoil that arguments in favor of the minimum wage sprout out. Something similar is happening in Italy too, where Letta’s government is trying to introduce the “SIA” (sostegno per l’inclusione attiva, active inclusion aid) by trimming the highest pensions (those above 90.000 euro) and re-distributing the money to a number of people that live under the poverty threshold. At first, the SIA will take the form of some sort of social experiment, and it will only take place in major cities, like Rome, Milan or Naples. But the problem with the SIA is that, if the government really intends to introduce this piece of legislation once and for all, it will have to spend approximately seven billion euros per year (at least according to Panorama). Not exactly what you call a small economic maneuver.
In short, this is what will most likely happen – from an economic point of view – right after the introduction of the minimum wage:
1) A great number of unqualified and young workers will be either lose their job or be prevented from getting one
2) As a consequence the economic pie will inescapably shrink
3) This will deteriorate the economy
4) This will lead to the necessity for more Welfare state measures
5) The government will have to try to re-introduce these workers in the economy by funding social programs
6) Prices of goods will most likely raise, if the government does not spend more money to keep them down
One doesn’t even need to quote all the negative sociological and psychological implications that might arise with the introduction of the minimum wage. Practically, the minimum wage is about blaming the employers for the state of the economy. It’s a Teufel Kreis, a circulus vitiosus, a catch twenty-two. By pointing the finger at employers, the government is only finding a popular scapegoat for an unpopular conundrum, and it is by no means solving the root of the problem. The employing class only represents a percentage of nowadays society; ironically, this percentage also coincides with the people who risk all of their assets on a daily basis in order to make money. And for some sort of poetic justice, these are the money that fuels the entire economic system.
And don’t think, not even for a second, that the problem of the introduction of minimum wages hasn’t been already explored. In a study published in 1916 by the Executive Committee of Merchants and Manufacturers of the State of Massachusetts and entitled “The Minimum Wage, a Failed Experiment”, the suggestion in this context is to search for a “true remedy”, not just a palliative. The same study also points out that to indulge in minimum wage wishful thinking is tantamount to:
“…sign a preliminary death warrant for many Massachusetts industries, and to bring into direct conflict this near approach to state socialism on the one hand, with the inherent right of private initiative and the reward of enterprise on the other hand which are part of the innate and inalienable human nature.”
The famous Arab philosopher Alfarabi used to define democracy as the “regime of corporate association”: that would be a state in which people are essentially free to do whatever they want insofar as they do not contravene existing laws. Needless is to say that the laws we are talking about are the same ones that the democratic rule itself put in place. And suffice is to say that, when laws can be made and then unilaterally changed, they become mere non-sense.
When dealing with minimum wage we are actually dealing with an ancient dichotomy, and namely the one that exists between wisdom and justice. Now, as counterintuitive as this might sound, the dictates of social justice rarely coincides with the dictates of egoistic wisdom.
Like Philus explains in the third book of Cicero’s Republic:
“Wisdom, as commonly understood, prompts us to increase our resources, to multiply our riches, to enlarge our frontiers. … But justice, on the other hand, demands that we should be merciful to all men, act in the interests of the entire human race, give everyone what they are entitled to, and never tamper with religious property or what belongs to the community or to private persons.”
Cicero wouldn’t like Obama’s tampering with what belongs to private individuals. Michelle Bachmann once stated that “literally, if we took away the minimum wage – if conceivably it was gone – we could potentially virtually wipe out unemployment completely because we would be able to offer jobs at whatever level.” But in conclusion, to put it even more plainly, one could quote Thomas Sowell instead: he once famously stated that, really, the actual minimum wage equals to zero, zilch, nil, nada. If you really want to find a job, you must be ready to start with no wage if needs be. Our Average Joe would surely find it poetically just. And he won’t get fired.