Cafe Hayek has a post by someone named Don Bordreaux trying to make the case that we should abolish the minimum wage. He begins with a scenario of you being in a fast food restaurant or rent-a-maid office, or the grocery store and you accidentally overhear a woman who is obviously poor, who speaks broken English, ask for and be rejected for a job at this fast food restaurant:
Suppose that you’re at a McDonald’s restaurant or at a Safeway supermarket or at the office of a maid-service company and you see a 20-something young woman. The woman is obviously poor by American standards and her English is broken and heavily accented. She has no certifiable job experience. She applies for a job and is rejected. She – with entrepreneurial gumption – responds to the rejection by offering to work, not for the minimum wage of $7.25 per hour but, instead, for $5.00 per hour. You observe the manager’s evident interest in her counteroffer. The manager ponders for a minute or two and then whispers to her – yet loud enough for you to overhear – “Look, that’s against the law, but I can use you at $5.00 per hour. So, okay, you’re hired! But please don’t tell anyone or else I’ll be in serious trouble and you’ll lose this job.”
He then attempts, badly in my opinion, to play on you, the reader, for sympathy, by asking how you could be so heartless as to personally (italics his) intervene:
Would you – you personally – intervene to stop this woman from taking this job? Would you – you personally – be willing to look her in the eyes and tell her that she may not take that job? Would you – you personally – inform this young woman (with regret, of course) that she must remain unemployed for the time being and resume her job search elsewhere? And would you – you personally – be willing to use force against this woman to prevent her from working at $5.00 per hour if she stubbornly ignores your demands? Would you be willing, if her stubborn refusal to refuse the job persists, to poke a gun in her face to prevent her from working at an hourly wage of $5.00 per hour?
The writer goes on to say that, of course we’d happily turn in the manager, or call the police to intervene, but that prevents the manager and the woman from knowing that it was us, personally, who deprived her of the job and turned in the manager. He ends with these questions:
But I wonder how many of you – you personally – have the courage of your moral convictions to be able to look the woman in her eyes and expose yourself personally, to her, as someone willing to deny her the opportunity to work at the highest wage she can now earn.
And if I’m correct, how can you, in good conscience, continue to feel that minimum-wage legislation is ethically justified?
The fact that I don’t eat fast food and can’t afford maid service aside and so never would have heard this conversation to begin with — I personally would have NO compunction about intervening in this situation, and making a report to the appropriate agencies as well as the division office of this fast food restaurant.
I would intervene for a number of reasons. That’s because I can think logically. First, if she was here as a refugee, the government would have offered her employment assistance and therefore she would not be begging for a job at less than minimum wage. If she was here legally, she could also appeal to a number of government agencies which would be happy to assist her, on a level they do not seem to display for natural born citizens, with finding employment or in getting public assistance.
Second, I can do math. If this situation were to happen without intervention, the very next thing to happen is that the manager would call his buddies and tell them that he got someone to work for less than minimum wage, and find out if his new girl has friends he can hire or refer to his manager friends. The next time an employee calls out, or has any sort of a discipline problem, they will find themselves out of a job and yet another person willing to work for less than minimum wage will be employed. This, I believe, is called wage deflation. Paul Krugman has an excellent article on this very phenomenon I found when I went googling a definition for wage deflation. Now, opinions on the REST of Krugman’s essays and work aside, this is a very commonsense and easily understood essay describing this problem.
Third, I can see the end resulting from this cause. This will have ripple effects – or as the Aussies and the English say – a knock-on effect on the rest of the economy. Because her wages are less, eventually there will be more people working at less than minimum wage than can be policed by agencies responsible for ensuring compliance with the minimum wage. People will not speak up, because they will now be working outside the law – and those few who still work for minimum wage will be in fear of losing their own jobs. These people will have even less money to spend on the basic necessities and therefore can’t. Sectors not directly related to fast food will experience loss of revenue and layoffs will begin in those sectors. Even the manager who began paying less than minimum wage will find that his bonus is cut, or the cost of living raise he was expecting, is not going to be happening. This will ripple across the economic landscape, and up the pyramid of unskilled, semi skilled, and skilled workers, to ultimately affect the owner class at the top. Of course, they at the top don’t rely on actual business earnings for their money, they rely on fantasy money produced via ‘vehicles’ such as bonds, stocks, and derivatives, so it will be quite a while before they realize that the REAL economy and money that their fantasy money used to arise from is, in fact, fantasy.
This author relies on shame and an appeal to the emotions in making this case, not logic. This is why I think most Libertarians of today are just selfish shits who don’t want to share the sandbox, and can’t logically think their way out of a paper bag. Or, as my ex-husband use to say, they don’t have enough brains to pour piss out of a boot. We don’t live 150 years ago, and thankfully so, or most of us would be working in factories or mills for those business owners at pennies per week, 16 hours a day, 6 days a week. We would have started working at as young as 6, and most of us would die from malnutrition or diseases easily prevented by proper diet, basic sanitation, and sunshine. Yet these Libertarians would happily do away with minimum wage even though their wages are predicated on that minimum standard, and would decrease by a LOT, if it were abolished. The concept of days off arises from the same place and time where minimum wage was implemented, and I’m sure Libertarians enjoy their holidays and days off as much as the next person. Same for medical care, enough food to eat, the ability to live where you want…you get the idea. It is BECAUSE of the abuses inflicted on the unskilled and fearful populace in previous centuries and eras that we have the protections — the privileges of middle class life — we have now.
I agree that regulation has gone too far. I can’t, for instance, open a business out of my home, because I live in a residential area. You can’t have manufacturing in a residential zone unless you want to drastically increase your tax burden and open yourself up to a whole host of new regulations. If I were to ever get to the point where I wanted to open a store to sell my hand crafts, I would need to pay rent for a building miles away, all the utilities, fire/theft/liability insurance (because someone might strangle themselves with a skein of my yarn and I’d be liable), the gas to drive there and back, and so on…. They are right in this point of view. It would be even worse if I were to build a building myself. Construction insurance, loan insurance, building codes (including the Universal Fire Code — look that baby up if you want to be goggled with horror at ridiculous regulations!), handicap access, etc.
If I were to hire an employee it would get even more onerous. Minimum wage, of course, but also Social Security tax, Medicare tax, state taxes, county taxes, and on and on…. or I could hire the employee on a 1099 as an independent contractor and let him/her worry about it, but I’m sure that opens me up to further regulations I can’t even conceive of right now. Like I said, regulation has gone too far. In this I do agree with Libertarians. How to fix this? I don’t know. I do know that slashing minimum wage without dealing with the economy strangling regulations (and the government entities creating more and more every day) is NOT going to work. Appealing to flawed logic and misplaced compassion for an agenda that benefits business owners – the 1%’ers greatly in the near term, and hurts them in the long term, is NOT the way to go about this.
ETA: I have more thoughts about this, but I don’t want to make it too long. I’m on vacation from school until next week so I will actually have time to put thought to form.