Lawmakers on Capitol Hill are moving to raise the federal minimum wage to $7.25/hour, up from $5.15/hour. Such efforts – and the problems thereof – only serve to highlight the senselessness of a federal minimum wage. A person living in rural Appalachia can rent an apartment for $300/month; in any major city, living quarters cannot be found for less than three times that cost. While the Washington Post laments the fact that minimum wage is different in two states, it misses the point. It is not necessarily a problem that neighbouring states have different wage laws: such is the nature of a federalist nation, wherein each legislative body has determined the an adequate minimum wage, tailored to the conditions of workers within its state. The federal government is ill-suited to such a task, a fact known by those eighteenth-century men with the wisdom to limit the power of Congress.
Invariably, when minimum wage rises substantially, labour costs increase. Small businesses are faced with the choice of cutting workers, cutting hours, or increasing prices. The first solution benefits those who are retained, but the first workers to be laid off are usually women, minorities, and the uneducated – the very people that minimum wage laws intend to help. Cutting hours results in a zero-sum game: a person will earn the same amount of money, but do it over less time. Moreover, companies want (and need) to correspondingly increase their productivity. Those unable to perform the higher-skilled, faster-paced jobs will find themselves without jobs at all. Finally, raising prices triggers an inflationary spiral – the purchasing power of the increased wage will slowly match that of the previous salary, with the result that Congress has, at best, run in place.
So who benefits? As the Cato Institute suggests, labour unions benefit tremendously by having an increased minimum wage. By their nature, they are able to exclude workers from the market; thus, the increased-unemployment problem and the issue of increased duties does not effect them.
Liberals seem enamoured of the idea that minimum wage should be a living wage – that one should be able to live independently while flipping hamburgers. In reality, the majority of minimum-wage earners are under the age of 25. The median family income is over $50,000/year. High school students hardly need to earn enough to live on their own; in fact, such a wage would create a peverse incentive to not continue schooling.