Morality And Minimum Wage

Poverty has profound moral implications. Most religious traditions throughout history have dealt with it in some way. Moreover, most people, religious or not, think that poverty is bad, and that we, as individuals, should have compassion. Visions of poverty stir most people to some type of emotional reaction.

As with every circumstance in life, the actions we take combine with environmental factors to determine the outcome, regardless of what we wish, regardless of good or bad intentions. Specific causes have specific effects. In complex situations, those effects might be buried among others or separated in time from the causes. The connections are not always obvious or straightforward.

That is where economic laws come in handy. They are simply descriptions of reality in human interactions, similar to descriptions of physical reality embodied in the laws of physics. You can’t look at the waves crashing in a rocky ocean shore and determine the laws of wave motion, but with a knowledge of wave motion, you can look at those complex interactions and understand what is going on. You also cannot look at the tumult of economic life and derive directly an understanding of the causes and effects. With a knowledge of economic laws, however, you can understand economic phenomena. One can hold a deep concern for the poor and still oppose minimum wages. Indeed, if one understands the laws of economics and economic history, the goal of raising the standard of living for the poor demands vehement opposition to them.

Consider the reality that some car dealers go bankrupt. Compassion might lead one to say that they should be protected so they can feed their families. One could propose a law requiring the minimum selling price of vehicles to be $20,000, whether it is new or used, whatever condition it is in. That way, each sale would be profitable.

That law wouldn’t have much effect for cars that are worth more than $20,000, but those cars that are worth less will just sit on the lot unsold. An unsold car doesn’t earn any profit but rather accentuates the losses. The effect of the legislation would be to hurt the people it was proposed to help. The minimum wage laws do precisely the same thing for people who try to sell their labor. Labor that is worth more than the minimum is not affected, but labor that is worth less is not sold. People without skills and characteristics to profitably fulfill job requirements sit on the unemployment line and welfare rolls.

People who earn a low wage do so because they lack the training, experience, temperament, or desire needed for available higher-pay jobs. Otherwise they would be accept such a job. Moreover, the vast bulk of people who hold minimum wage jobs are not poor, especially not the permanent poor. They are students looking for spending money. They are middle-class spouses earning some extra cash. They may be immigrants trying to learn a skill so they can move up the ladder.

The laws of economics don’t bear any relationship to good intentions, just as the law of gravity doesn’t care about injuries of people who fall. Political interventions in the economy, including minimum wages, always have negative unintended consequences, often worse than the original problem.

If you really want to help the poor, then promote freedom, promote property rights, fight political interventionism, remove the significant obstacles to starting businesses, and remove the incentives to being unproductive. Economic freedom is the moral imperative because, in all of history, it is the only effective long-term way to raise the standard of living for the poor.

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