It’s odd to discover a Republican especially a conservative Republican coming out in favor of an increase in the minimum wage. Yet former Virginia governor and now Senate candidate George Allen has done just that announcing he favors an increase in the federal minimum wage to $6.15 per hour if it is accompanied by a tax cut for small business. Mr. Allen joined the bandwagon after enduring criticism by his opponent, incumbent Democratic Sen. Charles S. Robb, that he is unsympathetic to the plight of blue-collar workers. Mr. Robb accused him of “callous disregard” of those who must make do on the minimum wage established by federal law.
Superficially and emotionally appealing, the minimum wage nonetheless represents an artificial manipulation of the market that prices many workers out of jobs something one can’t offset simply by rejiggering the tax code. It’s great to tell workers they’ll be paid $6.15 per hour but not so great if employers elect not to hire them because the cost of their services exceeds the value these workers add to the company’s bottom line. That fact may not be sweetness and light but it is reality. While politicians can force employers to pay employees “x” number of dollars they can’t force employers to hire people if it’s not in their economic self-interest to do so. This is why, in inner cities especially, unemployment and the minimum wage often go hand-in-hand.
As free market economists such as Milton Friedman and Friedrich von Hayek have pointed out, if the minimum wage were economically sound, why not raise it even higher than the $6.15 advocated by Mr. Allen? Surely, workers would be even more “secure” with take-home pay of, say, $10.15 per hour. The answer, of course, is that raising the wage to that level would be a guarantee of mass unemployment for unskilled and semi-skilled workers. The only difference as regards a minimum of $6.15, then, is one of degree and not of kind. One hundred percent unemployment or just 20 percent unemployment does it really make much difference to the affected workers? And is it good public policy to have some workers earning $6.15 per hour, while others earn nothing as opposed to having more workers employed overall, if at a different, perhaps lower wage?
The point apparently lost on Mr. Allen is that the market is the best judge of salaries, not bureaucrats ginning up arbitrary numbers that may bear no relation to economic realities. Employers, in a free market, must pay a wage that is sufficient to attract workers while also generating a net profit for the enterprise. They cannot pay appreciably less than this amount because workers will flee to other employers or more, since to do so hurts profitability. True, employers will naturally be inclined to pay the least possible and this makes them vulnerable to the charges leveled by minimum-wage advocates. But it’s better for workers and employers, in the grand scheme of things, to sort out their relationships between themselves without the ham-fisted interference of politicians and lawmakers who don’t have to meet a payroll or do a productive day’s work making something that people actually need.
Mr. Allen, a graduate of the University of Virginia, ought to have soaked up that lesson in Economics 101. Unfortunately, he appears to have cut class the day the minimum wage was discussed.