James A. Dorn, vice president for Monetary Studies at the Cato Institute, explains how an increase in the minimum wage, good intentions from proponents aside, can actually increase poverty. There is a strong body of evidence that minimum wage increases adversely affect job opportunities for lower-skilled workers. As Mr. Dorn writes, “Those workers most apt to lose their jobs as a result of a higher minimum wage are from low-income households.”
When legislators mandate a minimum wage above the market wage determined by demand and supply they deprive workers and employers of the freedom of contract that lays at the heart of a dynamic market economy. The wealth of a nation is not enhanced by prohibitions on free trade—whether in product, labor, or capital markets. People should be free to choose and improve. If low-skilled workers can’t find a job at the minimum wage, they won’t have the opportunity to fully develop themselves and move up the income ladder.
Groups that are pushing for a higher minimum wage may have good intentions but they discount—or fail to understand—the longer-run adverse effects of that legislation on freedom and prosperity. They only look at those who may benefit from a higher minimum wage, including union members, while downplaying the inevitable shift to labor-saving technology that will occur over time and the jobs that will never be created.
Those who argue that there is a moral case for a higher minimum wage seem to think that using the force of government/law to mandate wage rates that are greater than those freely negotiated in markets is both “fair” and “just.” Yet the minimum wage by its very nature interferes with freedom of contract and, in that sense, is unjust. Moreover, it prevents mutually beneficial exchanges. A young worker with little education and few job skills who is willing to work at less than the minimum wage to get a job and gain experience is prevented from doing so. How can that be “fair?”
Instead of solidarity, minimum wage proponents create dissent when workers find that prosperity cannot be created by a stroke of the legislation pen. Politicians may promise a higher wage rate to low-skilled workers but for those workers who lose their jobs, their incomes will be zero. Even the CBO thinks the Obama promise of $10.10 an hour, if implemented, would lead to at least 500,000 fewer jobs for those the law is intended to help.
The Minimum Wage Fairness Act is the wrong medicine for improving the plight of low-income families and creating a prosperous nation. Poverty is not abolished by legislative fiat. Rather, the path toward economic growth and well-being is paved with genuine free markets and limited government, and by thinking in terms of long-run effects of current legislation, not short-term benefits to special interests.