Do we really need a minimum wage?
If minimum wage were eliminated, the only jobs that would be affected would be ones that overpay unskilled workers
I recently watched the first episode of 30 Days, Morgan Spurlock's series about changing a person's lifestyle for 30 days in order to widen their perspective on the world. In this episode, Spurlock and his fiancée spent 30 days trying to survive on minimum-wage salaries — and they make blatant errors in judgment when it comes to their personal finance decisions (spending $80 when his nephew and niece came to visit for a day, for example).Skip to next paragraph
This is the institutional blog of the Ludwig von Mises Institute and many of its affiliated writers and scholars commenting on economic affairs of the day.
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More importantly, Spurlock uses the episode to advocate increasing the minimum wage. This article is meant to address the gaping holes in Spurlock's arguments as well as the problems in the arguments that I often hear when I explain how unnecessary our minimum-wage laws are.
I'll condense these arguments into three categories:
- that collusion among companies would drive wage rates to near zero;
- that eliminating minimum wage would cause salaries across the board to drop; and
- that citizens should not be compensated so poorly.
Each of these arguments may appear valid on the surface, but they all have fatal flaws.
Before delving into the debate, it may be helpful to understand a little of the history behind minimum wages. In the United States today, minimum-wage regulations are covered under the Fair Labor Standards Act of 1938 (FLSA). But 1938 was not the first time a minimum wage was accepted into law.
Twenty years earlier, Congress established a minimum-wage law specifically for women, requiring that they be paid at least $71.50 per month (25¢/hour). That law was overturned in the Supreme Court case Adkins vs. Children's Hospital, on the grounds that it restricted a worker's right to negotiate her own labor contract. If, for example, a woman wanted to increase her chance of being employed by offering her talents for $68.50 per month, the law made it illegal for her to do so.
This minimum-wage rate almost doubled within the next seven years. In the 73 years since the passage of the FLSA, the federal minimum wage has been increased 28 times and decreased only once (in 1963). The most recent adjustment was made on July 24, 2009, when it was raised to $7.25. It should also be noted, however, that states are allowed to mandate their own minimum wage as long as it is not lower than the federal level.
The most common concern I hear when discussing the possibility of eliminating the minimum wage is that companies will be able to get together and gang up on their employees, forcing them to accept wages of nearly nothing. This sounds plausible, but it leaves out two key points: employees are not "forced" to work at a specific place, and competition between businesses will automatically lead to different wages (not just between companies, but within the company as well).
The idea that employees are forced into jobs and exploited for their labor is well represented by the website Minimum-Wage.org. Here is just one statement from the "History" section: