How the Minimum Wage Hurts Poor People

by Mario Loyola

Progressive policies are usually advanced by reference to their intended beneficiaries, without any reference at all to the social losses they create. It’s important to see how the supposed benefits fail in the case of the minimum wage, and Kevin Williamson does a typically great job debunking those arguments in his recent piece on the homepage. But the minimum wage also creates unconscionable social losses, particularly for the poorest of the poor. If Americans could see that reality better, there is no way 76 percent of them would support an increase in the minimum wage.

The first thing to understand about the minimum wage is that it usually doesn’t make any difference, mercifully enough. At $7.25 per hour, it’s set well below where the market clears on most categories of hourly unskilled labor. In 2012, only about 1.6 million Americans were paid the minimum wage (out of more than 75 million hourly workers). But the president’s proposal to raise the minimum wage to $10.10 per hour could throw tens or hundreds of thousands of Americans out of work, among those who need gainful employment most desperately. You won’t hear the administration explaining why that cost is justified, because progressives rarely acknowledge that their policies have social costs at all, much less social costs that are justified by the benefits. Plus, this administration doesn’t seem the least bit concerned by the massive decline in labor-force participation during Obama’s presidency. Apparently, as long as all those unemployed people can live off welfare or other kinds of forced transfers, we’ve achieved “social justice.” Never mind that the permanently unemployed are permanently cut off from any sort of upward mobility.

The minimum wage is not a “protection,” as progressives often style it. It doesn’t confer a “right” to be paid any amount of money, because nobody has an obligation to hire you. The minimum wage only says that it’s illegal to work for less than x, no matter how badly you need that job. To the extent the minimum wage is set above where the market clears on a given wage category, businesses will typically respond with some combination of raising wages, cutting hours, and laying people off. And, to the extent they respond by raising wages, the higher labor costs are passed on to the consumer in the form of higher prices. Many of the affected labor categories are in industries — such as supermarkets and food service — that provide necessaries to poor and rich alike, so the social costs are grossly regressive.

If you want to see just how unfair the minimum wage is to poor people, consider the fact that those born into privilege enjoy a huge exemption from it — they can be interns in the profession of their choice. Recent college graduates can walk into the job of their dreams with no experience by offering their services for free as interns. This allows them to “get their foot in the door,” acquire valuable skills, and prove to their hoped-for employer that they’re worth hiring. Now imagine a recent immigrant asking for an “internship” at the local supermarket. Even if the supermarket is willing to open that door, the federal government slams it shut.

In a free society, the government should have no role whatever in deciding what constitutes “fair” terms of purely voluntary contracts. The freedom of association and freedom of contract should not be so lightly thrown out the window, and least of all on such an erroneous justification as that advanced for the minimum wage. The minimum wage is nothing but a price-fixing cartel. There’s a reason our laws criminalize price-fixing when it occurs in purely private agreements: Price-fixing results in reduced output and higher prices, forcing people to pay more for less, where competitive exchange would increase output and lower prices, and thereby realize potential social gains. Those reasons don’t go away when the government lends its power to the price-fixing. Actually, government intervention makes the social costs of price-fixing much worse, because the competitive market interactions that usually spell doom for a cartel are prohibited by law.

One can only hope that American society will progress to the point where people can see the fraud behind these progressive policies. Good intentions don’t make a policy moral. Real-world results matter. The minimum wage is an unconscionable policy and anyone who professes to care about the poor should oppose it on principle.

— Mario Loyola is chief counsel to the Texas Public Policy Foundation and visiting fellow at the Classical Liberal Institute of New York University School of Law.

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