When I first started writing here at TUW in earnest nearly a decade ago, I actually used to spend time writing up the very simple economic arguments, rooted in price theory and the empirical literature, regarding the minimum wage and many other proposed policies. There was once a time that I persuaded myself that a good dose of pure logic was enough to “win” an argument. Certainly a lot has changed. I don’t try to “win” arguments anymore – I probably spend a lot of energy just evading them now. But even if I were in the business of winning arguments, I’ve come to learn that it’s not logic most people care about. And since that’s the case, much of what I end up writing is ultimately a waste of time. To convince myself that it is worth putting pen to paper, at least on TUW, I tend to reflect upon logical considerations that seem to me to be unappreciated. So the following thoughts are in no way to be construed as home run arguments for or against the minimum wage, or even the most important ones, but ones that I find interesting ipso facto.
(1) Suppose you know someone that, rather than working for the man, works for themselves. There is little difference – in each case you work to produce a product or service, you sell it, and you earn income. Suppose this someone puts in about 20 hours per week doing such work, but when you look at the end of the year performance of this someone’s consulting activities, the total gross earnings are less than $6,000 (in fact MUCH lower). Putting these together would indicate an effective hourly wage of less than $6.00 per hour of work. Now, don’t go telling me what the minimum wage legislation says … I want to know if proponents of the minimum wage being raised think that this poor sap is entitled to earn a living that is dignified and that can support himself and perhaps a small family on? Is this person entitled to earn $7,150 for his 1,000 hours of running his own organization? And when the wage law is enacted and mandated wages go to $15.00 per hour or $10.10 or whatever the number is, is this person required to pay himself $10,100 or $15,000 for the year? Why not? And if so, then how is he supposed to do it? Why WOULDN’T proponents of the minimum wage argue that these poor entrepreneurs are entitled to earn a decent and dignified and respectable living without having to be at the mercy of impersonal competitive forces that force his annual earnings below a “living” level? We here at TUW are really wanting to know if ever any serious thought has been given to this and if so if there is a legitimate argument to be made to NOT make this man the object of the feel good sympathy of the minimum wage proponents? And who, of course, is to be deemed to have to raise this man’s pay.
(2) Let’s be generous and assume that the answer to (1) is, “yeah, sure, he deserves some cash.” Consider, hypothetically of course, that this “entrepreneur” happens to also have another full-time salaried job. And this salaried job is quite well paying (by objective standards, not by the standards applied to the 1%). It turns out that this “consulting” business is a side business on top of the “real” job, but perhaps is something the man wishes to turn into something more permanent. Again, all hypotheticals here. How many folks would NOW argue that this man is entitled to the minimum wage? I am almost sure that 100% of the people I would pose this scenario to would say that this person is in no way “deserving” of the minimum wage. And I wouldn’t disagree, but merely wish to ask the question of, “why do you say that?” Is it because there are circumstances beyond the actual wage one gets paid that suggest whether one ought to receive additional support? Now of course, I don’t think proponents of minimum wages better find themselves arguing this? Why is that? Because regardless of the empirical results on the minimum wage’s impacts on employment, unemployment, nonwage compensation, long-term business continuity and so on, what we DO certainly know is that a large number of minimum wage earners would fall closer into the 2nd category here than the “37 year old father, married, with 3 children, trying to raise a family on $56 per day. And once we admit that we can’t just look at the money earned by our fellow in scenario 1, I tend to believe that most “reasonable” arguments in favor of the minimum wage as an across the board law simply have to disappear. But of course, you knew I would say that.
(3) Suppose you knew someone who was actually salaried, say, as an investment banker at the entry level. I wouldn’t happen to have any firsthand knowledge of this, like everything else in economics, I make this stuff up too. Suppose their annual pay was something like $35,000. If this person worked a normal work-week, their hourly pay would amount to $17.50 or so. But what if this person ended up pulling 110 hour work weeks? Now he;s making $6.36 per hour. Do minimum wage supporters also support a maximum hours worked law? Or do they mandate that there be an increase in investment banker pay?
(4) And while I am pondering the coming $10.10 minimum wage, can someone refer to the economic literature and economic theory that says this is the correct amount? Why not $10.02? Why not $11.15? Who came up with this number? I can assure you that at best it is pegged to some “ideal wage that existed in the past” but this is nothing more than arguing that football players today be mandated to wear leather helmets. Why? Because .. we think … they look cool.
(5) Dear minimum wage supporters, can you tell me why, if employers are required by law to pay people no less than $7.15, anyone is paid more than $7.15?
(6) Dear minimum wage supporters, can you tell me why a person who is earning $14.00 per hour actually obtains that wage? And please, when you answer, do make reference to what is different about someone who earns $7.15.