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Minimum Morality

The economic reasoning behind why rules like the minimum wage or living wage laws are not so helpful is irrefutably solid. But no amount of sound economic thinking seems to work for my students, and that certainly also applies to popular notions of the way the world works. In times like those, perhaps it is appropriate to raise moral and ethical questions about these policies.

The typical argument supporters make for the minimum wage is that “employers could just pay a little more, they can afford it, or what prevents employers from paying workers even $4 or $3 or $2 or less?” As I said above, I’ll not argue the economic case here, no one cares to listen to it. Just one economic thought before my ethical question:  f this is so logically true, then why is it that over 98% of employees in the labor force earn more than the minimum wage? And why don’t your employers cut your wages right now. The answer is related to the mirror question, “why isn’t the price of every good you consume sky high, or even a little higher than it is now?” You cannot answer each of these questions differently.

But the moral case against the minimum wage is just as solid, or so I once thought. If the populace believes that “we” have a moral obligation to help the poor, then how come we pass minimum wage laws requiring only a small subset of the population to take up this responsibility? What is moral about that? Why is not the responsibility falling on the shoulders of all of us? And did anyone ever stop to think of who it is that pays the minimum wage? If you think you are sticking it to Walmart, you have another thing coming … in fact, Walmart is very likely to be made better off when minimum wages increase the price of low skilled workers. Similarly, did you ever wonder why unions and their workers support the minimum wage so ardently? Isn’t the point of being in a union to be paid substantially more than the minimum wage and to improve workers’ bargaining position? Don’t most union workers earn more than the minimum wage? Then why the heck would they care so much about it (and don’t go screaming morals and ethics at me, if that were the case, why the minimum wage is the moral horse people should be riding is not clear at all to me, why not rise the death penalty moral horse, for example?). The plain fact is that when the minimum wage is raised, it makes the relative price of union workers (and Walmart workers) lower – thereby making it more attractive for companies to use union labor and not the now higher paid non-union workers. Parading around on your moral high horse when this is an underlying motivation seems a little disingenuous, no?

That’s right. Most minimum wage workers (who are not themselves poor, but leave that inconvenient truth aside) work at smaller companies, mom and pop shops, and the like. These places are not rich, and they cannot sustain wage increases without doing damage to their existence. These folks used their savings, their blood, sweat and tears, and took an entrepreneurial risk … and as a reward for that risk taking (to serve us) we … force them to pay workers more than they are currently being paid. Where is the morality in that?

Consider a thought experiment. There are two people, Amelia and Bedelia who are identical in every regard. Amelia decides to work for a hospital as a pathologist and earns $70,000 per year. Bedelia has the same skill set, but prefers to make her own hours, and wishes to be entrepreneurial about how do deliver pathology services to her customers. So she starts a little independent testing lab down the street from Amelia’s office. Bedelia has to hire to low skilled workers to process paperwork and deliver results to clients, Bedelia herself takes no salary, but keeps whatever profits she makes for herself. Each year those profits amount to $70,000. However, because she decided to start a business, she is now asked to pay her two workers just a little bit more – say 50 cents an hour over the market wage. Well, 2 workers earning 50 cents more per hour over a year amounts to $2,000 in additional expenses.

So now Bedelia, doing the same work as Amelia, but taking on more risk, is being asked to contribute $2,000 to the well being of two workers that she never had to hire in the first place. Let’s push this further. Suppose Bedelia managed to run the business all by herself with no workers. Since folks think it is morally fine to impose the costs of paying minimum wage workers more wages solely on Bedelia, does it them follow that just by going into business yourself that you are obligated to hire low wage workers? No you say? I have no idea how you could justify a no answer, and then argue that if she decides to actually hire people, and they voluntarily agree to take the position, that somehow she incurs an additional moral responsibility to help the poor.

Nothing prevents “us” from helping the poor and low wage workers. That we don’t perhaps says something about our moral code. That we legislate and force by point of a gun this responsibility on a select group of comparatively unwealthy risk takers says even more about our moral code. Consistent and honest thinking about the moral case for the minimum wage at least should raise the question of if it is the right thing to do. But that kind of thinking seems to be beyond the reach of knee-jerk religious supporters of “labor” policies. But if both the moral approach and the economic approach lead us to the same conclusion, how can one still strongly support policies like this?

2 Responses to “Minimum Morality”

  1. Speedmaster says:

    I always like to ask people why we can’t just eliminate poverty in the entire continent of Africa by asking them to legislate a say $35/hour minimum wage.

  2. Harry says:

    Speedmaster hits the nail on the head.

    Minimum wage laws, like child labor laws, have their origins in the late 19th century, where the political class and the fourth estate reside along with your academic brethren.

    I’m waiting for Nancy Pelosi to close the loophole that lets me not to have to file form 940 and issue W-2’s when I pay a kid $7 per hour to rake my leaves. This is not an idle speculation, since the next step would be for me to pay for his or her or their health care, which would include both the chiropractor and the shrink.

    As Speedmaster implied, why not require me to contribute an additional $3 per hour into a pension plan for the kid, and pay for an annual physical at the Greenbrier? Plus prepaid dental and legal services.

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