Two years ago, New Jersey voters took the unfortunate, ill-informed step of approving an amendment to the state constitution to raise the state minimum wage and lock in automatic annual cost-of-living increases, starting from a base of $8.25, one dollar above the then-current rate.
Now, the drumbeat for more constitutional increases has begun, with the New Jersey Star-Ledger, the state’s largest newspaper and leading left-wing voice, leading the charge. In an editorial Raise the New Jersey minimum wage. Yes, again, the Star-Ledger pointed to the [unfortunate] popularity of raising the minimum wage, even among Republicans, as justification. The Star-Ledger also employed the usual economic fallacies to promote a new constitutional amendment to drastically raise the base minimum to well above the $8.25—perhaps to as high as $15.00.
I left these comments:
This whole editorial misses the fundamental point: Minimum wage laws are immoral because they violate the rights of employers and job seekers to set their own terms of employment by mutually beneficial voluntary agreement. The proper purpose of government is to protect individual rights equally and at all times. This is the most fundamental principle of America. Rights are guarantees to freedom of action, not an automatic claim on material benefits, such as a “livable wage,” that others must be forced to provide. Individual rights include the right to voluntary contract—an outgrowth of the right to freedom of association. Therefor, the government’s job is to protect contractual rights, so long as the terms of the contract don’t involve the intended or actual violation of anyone’s rights. A voluntary compensation agreement between an employer and a job seeker, whatever the hourly rate, does not violate anyone’s rights, so the government has no legitimate say about it until and unless one side or the other commits fraud or breach of contract.
As to the practical aspects of minimum wage laws, every time government raises the minimum wage, it criminalizes more jobs—jobs that pay less than politicians approve of, thus shrinking the number of entry-level jobs that new, younger, lesser-skilled workers (among others) need to get started on the lower rungs of the economic ladder of upward mobility. Existing workers lucky enough to keep their jobs and get raises due to minimum wage laws forced on their employers did not earn the raise. They got a handout at the expense of opportunities denied to others. Earning a raise involves taking personal actions to increase one’s skills, knowledge, and experience so as to make themselves worth more to employers. The pay one deserves is based on the worker’s contribution to the productive process, as determined by voluntary market forces; i.e., what someone is voluntarily willing to pay the worker (or businessman, for that matter). Just deserts do not depend on what someone needs to live on. No one “deserves” a wage forced on an employer by legal aggression, any more than businesses deserve some minimum profit forced on consumers by “minimum product price” laws. Need is not a license to steal.
As to productivity, the truth is that productivity increases do not automatically justify wage increases, because the worker is not primarily the cause of his increased productivity. Productivity is created by innovators and businessmen who invent and invest in labor-saving technologies and production processes. Workers play a role, in that they must learn the new technologies and processes. But productivity is mostly a gift to workers. I spent 46 years in the plumbing trade. By the time I retired, I was producing much more than when I started, due to new tools, lighter materials, new methods, etc.—and I worked much less hard and much more safely than when I started. My contribution to my steadily higher real wages was to make the effort to learn the new stuff. But the stuff was the primary factor, and I’m grateful for those gifts. And while rising productivity always tends, over the long run, to raise real wages, it is an effect and it does not follow that raises should be forced on employers for that reason.
The idea that drastic increases in the minimum wage will be “the catalyst for a more motivated and competitive workforce” is particularly laughable. What motivation is needed when raises for some are automatically imposed on their employers, while the hordes of minimum wage-induced unemployed get welfare because jobs they are qualified for were made illegal? Why become competitive in the lower end of the job marketplace, when everything is automatic and your personal responsibility and personal choices no longer mean much?
Minimum wage laws only affect about 5% of the workforce presently, so the destructive economic effects are limited and not widely apparent. But if the current trend to criminalize more and more jobs continues, that will change, to the detriment of millions of workers and employers, as businesses automate more to offset coercively higher labor costs, and many new businesses fail to get off the ground due to unaffordable labor costs forced on them.
True, sometimes workers are paid less than they are objectively worth. But such inequities generally don’t last, due to competition. And temporary inequities certainly don't’ justify a government sledgehammer approach. The only legitimate way to foster rising wages is by fostering a robust economy, and that requires more economic freedom, not an ever-tighter economic straightjacket imposed by government officials—the exact opposite of what has been going on since the Great Recession. Regardless of their (unfortunate) popularity, minimum wage laws are immoral and economically destructive, and should not only not be raised, but should be repealed.
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My point about motivation now has empirical evidence behind it. I wrote:
The idea that drastic increases in the minimum wage will be “the catalyst for a more motivated and competitive workforce” is particularly laughable. What motivation is needed when raises for some are automatically imposed on their employers, while the hordes of minimum wage-induced unemployed get welfare because jobs they are qualified for were made illegal? Why become competitive in the lower end of the job marketplace, when everything is automatic and your personal responsibility and personal choices no longer mean much?
Gravity Payments made a splash with the media when it voluntarily raised its company minimum wage to $70,000 a year, only to find that it built resentment among experienced workers who had to work their way up the income scale, only to now find themselves working side-by-side with workers who got the same salary without having to earn it. As the New york Post discovered:
Price’s stand against income inequality made him an immediate darling of the left.
But key employees saw it differently.
Financial manager Maisey McMaster liked the idea at first — until she thought about it.
“He gave raises to people who have the least skills and are least equipped to do the job,” she told The New York Times. Meanwhile, “The ones who were taking on the most didn’t get much of a bump.”
She thought it would be fairer to give smaller raises, with the clear chance to earn more with experience. Price brushed off her doubts; she quit.
Also out the door: Web developer Grant Moran. He says, “Now the people who were just clocking in and out were making the same as me.” Plus, having your pay level a very public matter is a problem, with “friends now calling you for a loan.”
Moral of the story: Some people work harder than others; some have stronger skills — and they don’t think it’s fair that they’re paid the same as others.
Price will soon be left only with workers worth his chosen minimum wage — or less.
The company is already in chaos thanks to the policy — but the big problem is ahead, as it tries to keep growing and innovating with only mediocre talent.
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