Opinion: Daily Journal

Wage Debate Diverts Attention From Real Economic Problems

The push is on, both nationally and in several states, to raise the minimum wage from its current $7.25 an hour to $10.30 nationally and as high as $15 in specific cities and states. I think it would be absolutely great if everyone who wanted a job could get one at a wage of $10 or $15 an hour. But alas, and quite unfortunately, raising the minimum wage will not and cannot accomplish this goal.

As I have argued often (including these two examples), wages cannot be set arbitrarily by government fiat. No one will be paid a wage that is greater than the value of his or her productive output, unless employers are in the charity business.

The choice is not between employing someone at a lower minimum wage or a higher minimum wage but between employing a person at the minimum wage, however high it is set, or not at all. And all employees and potential employees whose skills are valued in the marketplace at below the cost of hiring them — including not just the minimum wage but the cost of Social Security, unemployment insurance, and, as of January 2015, health care benefits as required by Obamacare — will be unemployed. While a politician may be able to look like he or she is doing something good for workers by forcing an increase in the minimum wage, the reality is that for many workers the new wage will be zero.

For supporters of increasing the minimum wage, the presumption is that the output of those who are working at or near the current minimum is actually worth much more than the wages they are being paid. In other words, a 40, 50, or 100 percent increase in their wages would not price any of them out of the labor market. For this to be the case, employers would, in general, have to be stupid, and labor markets would have to be failing miserably.

The question to ask is, if someone who is being paid $7.25 an hour actually has skills that make him able to produce $10 or $15 an hour worth of output, why isn’t he being paid something closer to that amount? The progressive’s answer would be that the employer is a greedy exploiter, who simply wants to get as much value out of the worker as possible. So why should he pay more? The reality is that, because of labor market competition, the worker’s current employer (along with other employers) has an incentive, driven by that same greed, to increase his wage.

It would be stupid for employers and the market to leave value on the table. If a person currently making $7.25 an hour is actually worth $10.30 or $15 an hour, then it would be in the interest of some employer to bid him away from that $7.25 an hour job, since his current employer is so stupid as to be unwilling to pay him more. Another employer could increase his own profits by paying that employee $9 or $10 an hour. It is through this kind of process that employees ultimately end up getting paid something close to the full value that is justified by their skill levels.

Someone with a sincere interest in seeing employees get paid more, and therefore improve their standard of living, should be asking why there are people in our society whose skills are so low that they cannot command a wage that most people would consider “livable.” The answer is not to be found in focusing on employers and how much they pay but on the lives and educational backgrounds that those workers have endured before they ever reach the labor market.

In other words, there needs to be a closer examination of the institutions — educational and social service — controlled by the same progressives who are calling for increases in the minimum wage. Calls for a higher minimum wage are simply a diversion from the real social problems that are causing the low, nonlivable wages of some of our citizens.

Dr. Roy Cordato (@RoyCordato) is Vice President for Research and Resident Scholar at the John Locke Foundation.