Tuesday, September 8, 2020

QUORA: ‘Would the concept of "minimum wage" exist in a pure free-market economy or could the business owners pay the workers as little as they wanted?’

 

QUORA: ‘Would the concept of "minimum wage" exist in a pure free-market economy or could the business owners pay the workers as little as they wanted?’

 

Yes. Of course, there wouldn’t be any government-mandated minimum wage, enforced under penalty of laws. 

 

Government, as an employer, could set minimum wage policies for it’s own employees. But it leaves private employers free to set their own compensation standards, and many can and do set minimums as a matter of policy. But business owners could not just “pay the workers as little as they wanted.” A job is a mutual agreement between employer and employee. Businesses have to compete like everyone else, and this includes competing for employees. 

 

There is a myth perpetrated by minimum wage law supporters that without these laws, there would be a “race to the bottom” that would force down general wage levels. But this is demonstrably false. If it were true that “in a pure free-market economy business owners pay the workers as little as they wanted,” then the same principle would apply even under minimum wage laws: Most workers’ pay would gravitate down to today’s legal minimum wage. 

 

But this is not the case. In fact, the U.S. BUREAU OF LABOR STATISTICS reports that as of 2017, only 2.7% of the 80.4 million hourly workers in America earned the Federal minimum wage of $7.25 per hour. That percentage is probably higher in states with higher minimum wage rates. For example, in New Jersey, as NJ Spotlight reported in July 2019, about 6% of the state’s hourly workforce--242,000 of about 4 million--earned the then legal minimum $8.85 wage. It’s now higher, but I could find no more recent statistics on what percentage earn the legal minimum. 

 

The fact is, if businesses could simply pay the lowest wage they wanted, then why wouldn’t they simply pay every worker the legal minimum wage? It’s simple. Because they can’t. The fact that almost all workers earn more than the minimum wage proves that the market won’t allow it. Workers have economic power, in the form of their productive abilities, experience, work ethic, etc., so they can and do demand and get higher wages. Businesses need that economic power, and must pay up to attract and keep the kinds of work forces they need to thrive and grow.

 

Related Reading:

 

Gravity Payments' Voluntary 'Minimum Wage' vs. Minimum Wage Laws

 

The Economic and the Moral Case Against Minimum Wage Laws: Perfect Together

 

Without Minimum Wage Laws, Would General Wages Plummet?

 

How Minimum Wage Laws Facilitate "Wage Theft"—Against Employers

 

Government Should Stay Out of the Business Compensation Decisions

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