Wednesday, June 4, 2014

Dissecting minimum wage

I want to step back and look at minimum wage. At the time of writing this, Seattle has just enacted a $15 minimum wage, and of course the internet is going wild with debate on the matter. I find that there are valid points on both sides of this debate.

I hope most of us can agree that people have an inherent right to work in order to survive, to maintain a decent standard of living, and to better themselves. To do that, they need to gain from that labor what is adequate to meet those needs. Every person willing to take responsibility for themselves and work should be able to do so and have those needs met through their labor. Every person in poverty should be able to work their way out of it, even with the limited means and resources that usually accompany true poverty. Poverty is a debt, and like any debt it should be self-amortizing. And it is only right that a person should have recourse to defend themselves against predatory or exploitative employment practices. Ideally, one would simply look for work elsewhere via the free market, but when circumstances make that difficult or impossible, holding a person's need hostage in order to coerce them into lower wages is a form of violence, and should be considered unacceptable for any civilized society.

However, when you implement a minimum wage as a solution you create a multitude of problems in the process. The two objections I hear most often are increased prices and decreased demand for labor (ie: fewer hours and fewer jobs). I've heard many arguments for and against these objections, but truth be told I haven't really followed up on them, simply because they represent an economic drop in the bucket.

What does concern me is inflation. If you give people more money they are likely to go out and spend it. Demand will increase, prices will increase proportionately, and the market will correct for the minimum wage increase. Note that this price increase is due to demand, not due to the cost of paying employees minimum wage. Ideally, with demand increase a supply increase should follow and the economy would begin a cycle of recovery... but with the economy being strangled by large firms and corporations that have increasing control over supply, and tightening regulations which sets the entry requirements for new competition increasingly high, it is highly unlikely that a proportionate increase in supply will follow. So, when the market corrects, that $15/hour will have a value close to the $7.25/hour we have today. This also has the nasty side effect of eating up all of the raises accumulated by employees over that time, as the value of their wages drops and puts them essentially back to where they started, at the bottom rung of the ladder. As a wage sla... er, wage earner myself this would particularly irk me.

If this was the long and short of it, we might conclude that, despite its side effects, the minimum wage is necessary to ensure that people can make a living and better themselves – except that the minimum wage doesn't even address the real problems. A minimum wage doesn't put any new wealth into the economy, it just spreads the existing wealth around more sparsely. Someone might argue that this could be useful for freeing up wealth that's gotten 'stuck' somewhere, say... with the top 1%. However, the reality is that a minimum wage is powerless to make them give up their piece of the pie, leaving the consumer and the market as a whole to bear the burden. Otherwise you wouldn't see executives getting increasingly bigger bonuses in a recession.

The problem isn't that people aren't making enough money. We have tons of money, more than any time in history. The problem is that our money is losing value because it is increasing in supply at a faster rate than the real, physical wealth that backs it, which are the goods and services on the market. And the wealth that exists, people at large possess a smaller and smaller portion of it. Most of what they do possess depreciates in value and does nothing to generate wealth or better their condition. We have little ability to generate wealth on our own, and so depend on large firms to generate it for us and decide how much they want to share. Physical wealth, comprised of real goods and services, is the capital that drives the economy, allows for growth, and puts food on a person's table. Currency is just the middle man. There is a wealth vacuum among the lower and middle class, but a disproportionately abundant supply of dollars, and the minimum wage does nothing to address this.

The worst part of the minimum wage, however, is the intrinsic nature of what it is. It is getting between two people making a private agreement and dictating to them the terms on which they must agree... at gunpoint. If the employer refuses to comply with the minimum wage, and similarly refuses to comply with whatever penalties are placed on him by the government as a result, they will shut down his business. And if he refuses to be shut down, then men with guns will show up to do so forcibly, and probably to arrest him, and they will use whatever means they have at their disposal to force his compliance. There is no way around this. A minimum wage is violence. Coercing employees into accepting a lower wage against their will is also violence, and employing some kind of minimum wage against an employer doing this might be justifiable as a defensive action. But to use a minimum wage proactively, to blanket it across all employers regardless of circumstances, is to initiate violence against otherwise peaceful persons and violate their right to free association. That is, by any sane ethical standard, wholly unacceptable. For me, this is the last nail in the coffin to the idea of a minimum wage as any kind of solution for ensuring that people can earn an adequate living for themselves.

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