Minimum Wage There Are No

Minimum Wage

There are no shortage of economists who stand in favor of abolishing (or lowering) the minimum wage. The basic premise is that the minimum wage represents a market distortion. In a perfectly free market, the wage level will be determined by supply and demand, and any distortion risks the creation of an imperfect market. The minimum wage represents a form of political interference in the market for labor. Most arguments, however, go beyond purely economic terms. In arguing against the minimum wage in a Joint Economic Committee Report, Reed Garfield (1996) noted that the minimum wage was created to generate certain social benefits and that for the most part those benefits have failed to materialize. Other authors have noted that the minimum wage is politically popular, lending considerable political impetus for its existence (Dimock, 2006).

In order to properly evaluate the value of the minimum wage, most economic analysis goes beyond the basic free market argument to incorporate the knock-on impacts on the economy. An example of such a knock-on impact, noted by Garfield, is that employment declines when minimum wages are increased. Jobs that can be shipped offshore sometimes are when the cost of labor is increased. This has the impact of reducing tax receipts from wage-earners. The company, however, would profit from lowering its cost of labor, and this would improve the corporate taxes collected. For the government, the preferred option relates to the differential rates of revenue collection between corporate taxes and taxes on minimum-wage earners. It is likely that the corporation pays more in taxes than the minimum-wage earner, so the government likely would benefit more financially by eliminating the minimum wage.

Proponents of the minimum wage argue that putting more money in the hands of minimum wage earners has a positive impact on the economy. Those workers not only pay taxes, but they spend all of their money rather than saving it. This creates a knock-on effect wherein this spending fuels hiring at other companies, whose workers also spend. In contrast, the additional profits earned by corporations as a result abolishing the minimum wage could be invested anywhere in the world and capital gains from stock price improvements are taxed at a relatively low rate. Without a minimum wage, there would be more Americans working, but they would not make enough money to survive. This could have a number of impacts. Many workers would exit the job market, choosing instead to rely on social assistance. Others would turn to criminal enterprise or find ways to work in the underground economy. If too many Americans earn insufficient amounts to survive, there could even be deflationary pressure as prices will need to come down to the level of these workers.