The 2012 platform for the Democratic Party promised to raise the national minimum wage from $7.25 to $9.50 per hour and to tie future changes to inflation.
Just as with arguments for a "living wage," this sounds like a good and compassionate idea, but it has a false allure.
The U.S. Bureau of Labor Statistics reports that about 70% of minimum wage workers are teenagers, college students and secondary earners who are in households that, for the most part, are not poor. Thus, only about 30% of the extra income generated by minimum-wage laws goes to people below the poverty line. So if the idea is to relieve poverty, the minimum wage laws do not provide nearly the assistance commonly believed.
Instead, the major effect of these laws is to reduce the number of low-wage jobs available for entry-level positions. For example, harsh as this may sound, some workers are simply not worth $9.50 per hour. Thus, no jobs will be available for them, and they will be out of work.
In addition, some companies simply cannot stay in business if forced to increase their labor expenses. That means they will have to make some choices.
One choice is to lay off some workers and attempt to get by with a smaller work force. This financially assists the remaining workers because they receive a raise, but it also results in a more hectic workplace. But obviously this also results in a large hardship for the laid-off workers. In addition, some companies will not be able to adjust, so they will go out of business, resulting in all of their employees losing their jobs.
Another choice is for companies to mechanize so that they can replace the more expensive human workers with computers, robots or other machines. A graphic example of this is the replacement of many cashiers at home improvement and grocery stores with self-checkout equipment.
But some companies, such as fast food restaurants, are so labor intensive that they cannot adjust or mechanize. Thus they are generally forced to continue with the same staff at higher wages. Some of these companies will successfully manage the changes, but others will close their doors.
Other businesses have political clout and are able to seek and receive exemptions from the increases, arguing that they would go out of business without statutory relief. The most common of these are exemptions for workers who pick agricultural crops, but the same argument can be made for many other businesses that are not so politically powerful.
The bottom line is that the marginal benefits for those employees who retain their jobs because of laws requiring artificially higher wages are outweighed by the hardships inflicted upon businesses and those workers who lose their jobs.
All of this means that minimum- and living-wage laws should be repealed, because they cause more harm than good. But unfortunately this is not possible in today's political climate. So instead, functional libertarians recommend that we begin by repealing those laws for everyone younger than 25.
This would result in many entry-level jobs being retained and even created for younger workers. Not only would that give more young people jobs, it would also afford them a timely and critical opportunity to learn and develop a positive work ethic. And this will, in turn and over time, give them large opportunities for advancement.
Employers are almost always searching for workers who, in addition to being able to capably perform their work, are reliable, responsible and pleasant. So once workers are able to acquire and demonstrate these beneficial and productive traits, they almost unfailingly receive a raise or procure a higher-paying job elsewhere.
Depriving young entry-level workers of the opportunity to develop and demonstrate these skills is enormously counterproductive and harmful to workers, businesses and society as a whole. For example, isn't it better for society to have 100 entry-level people working at $7.25 per hour than 80 similar people working for $9.50 per hour?
Finally, the needs of those workers who are not worth the artificially increased wages cannot effectively be addressed by the government meddling in the workplace. Those needs are better addressed through education, training and counseling services. All the government's meddling accomplishes is keeping those unskilled workers from being able to get or hold onto a job.
Of course, once we pursue the partial measure of repealing minimum-wage laws for the younger workers, soon the voters and politicians will see that the artificial approach of minimum and living-wage laws is ineffective for everyone else as well. So this will, in turn, likely result in a full repeal of all of these counterproductive laws. To which functional libertarians say, amen.