Friday, May 24, 2013
Joseph R. Reisert
In his State of the Union address last week, President Barack Obama called upon Congress to raise the federal minimum wage, from $7.25 per hour to $9 and to index that amount for inflation.
"We know our economy is stronger when we reward an honest day's work with honest wages," Obama argued.
Most critics argue that, while raising the minimum wage may sound like a good idea, it is counterproductive in practice.
Basic economic theory tell us that when the price of a thing rises, less of it will be bought. Thus if we make it more costly for businesses to hire workers, we should expect that they will hire fewer of them, which means an increase in unemployment.
Empirically minded economists have sought to test that theory. In their recent comprehensive study of the effects of minimum wage laws in the United States, David Neumark and William Wascher find strong evidence that increasing the minimum wage makes it harder for the least-skilled job seekers to find employment.
Moreover, they do not find evidence that raising minimum wages reduces poverty, and some evidence that it may, perversely, harm poor families.
There is another, still more compelling, line of argument against raising the minimum wage: Government-mandated wages represent an arbitrary and unjust interference with the liberty of business-owners and people who are looking for work.
That was the conclusion of the U.S. Supreme Court when it first had occasion to consider the constitutionality of minimum-wage laws in Adkins v. Children's Hospital in 1923. The court, however, later concluded that courts had to defer to the economic choices of legislatures, if those could possibly be characterized as in any way "reasonable."
Justice George Sutherland's argument in 1923 began with the same premise Obama used: An honest day's work deserves an honest wage. The question is: Who decides how much a day's work of any person's labor is honestly worth?
The president's position is that the government decides: No full-time employee's labor can possibly be worth less than $9 per hour.
But how can the president, or the Congress, know this? Why should the government fix the minimum price of labor at $9 per hour and not $10, or $100 per hour? The number is just made up; it's arbitrary.
Sutherland, by contrast, argues that the honest wage is the wage to which the employer and worker agree. No employer will offer to pay more to an employee than his labor is worth in terms of increased revenue, and no employee will accept a lower-paid job if a better-paying alternative is available.
For most Americans, wages and benefits are set by negotiation and agreement in the market, not by the government. Why should the wages of the least skilled be any different?
Because, according to the president, every person deserves a "wage you can live on." That goal is laudable enough, even though many minimum wage workers (such as teenagers entering the workforce) do not expect to support a family on their wages.
Sutherland agreed that the government should alleviate poverty, but that the minimum-wage law is an unjust means to a good end. The minimum wage law, he wrote, "exacts from the employer an arbitrary payment for a purpose" wholly unconnected with "the work the employee engages to do."
In other words, the whole point of the minimum wage is to force employers to pay some employees more than their skills would otherwise earn them in the marketplace, simply because the government thinks the workers should have more money. Either the employers themselves will bear the cost of the higher wages, hiring unskilled workers at a loss in order to avoid having to close the businesses in which they have already invested so much; or they will pass along those new costs to their customers.
The fundamental unfairness of the policy is this: The moral obligation to take care of the poor falls upon the community as a whole, but the minimum wage imposes the cost of subsidizing the poor on only some of us, those who own businesses that employ unskilled labor and those who regularly buy their products.
Pay close attention to the president's statement and you'll hear the unfairness: When he says that "we" should reward the same work with higher wages, he really means that the government should force somebody else to pay higher wages. But of course he'll take the credit.
Joseph R. Reisert is associate professor of American constitutional law and chairman of the department of government at Colby College in Waterville.