What Is Missing in the Arguments against a Minimum-Wage Hike?

For several years now, Democrats, liberals, progressives, Democratic socialists, and socialists not afraid to proudly wear the name have been agitating for an increase in the federal minimum wage to $15 an hour. Organized labor groups, many large corporations, and organizations such as Fight for $15 have joined them. A standard 40-hour workweek at $15 an hour results in a yearly salary of $31,200 before taxes.

Soon after Joe Biden was sworn in, he and the Democrats in Congress wasted no time in launching their quest to raise the minimum wage to $15 an hour. On January 22, 2021, Biden issued executive order 14003, “Protecting the Federal Workforce.” Section 5, “Progress Toward a Living Wage for Federal Employees,” states that “the Director of OPM shall provide a report to the President with recommendations to promote a $15/hour minimum wage for Federal employees.” According to the Federal Times, “Currently the lowest general schedule pay grade is set at $19,738 per year before locality adjustments. Under 2021 pay tables, feds would have to reach GS-3 step 10 to surpass the $15 per hour requirement if working full time. According to the most recent OPM employment data, nearly 20,000 federal employees make below $30,000.” And according to National Economic Council (NEC) director Brian Deese, the president also directed his administration to initiate a process “that would allow him within 100 days to issue an executive order requiring federal contractors to pay at least a $15 minimum wage and provide emergency paid leave to workers.”

A proposal for a $15 an hour minimum wage was added to the Democratic Party platform in 2016. The “Raise the Wage Act” (H.R.582) would have raised the minimum wage over a seven-year period to $15 an hour; eliminated the separate minimum-wage requirements for tipped, disabled, and newly hired employees under 20 years old; and instituted annual automatic increases in the minimum wage. It passed in the House in 2019 by a vote of 231–199. Only three Republicans voted in favor of the bill. However, the bill was never brought up for a vote in the Republican-controlled Senate.

The “Raise the Wage Act of 2021” (H.R.603) was introduced in the House on January 28. A companion bill (S.53) was also introduced in the Senate by Bernie Sanders (I-Vt.), who had expressed support for a $15 minimum wage in his presidential campaigns. These bills mirror the previous incarnation of the “Raise the Wage Act,” except that they would raise the minimum wage to $15 an hour by 2025. According to a “Fact Sheet” issued by the Committee on House Education and Labor, the “Raise the Wage Act” would “increase wages for nearly 32 million workers”; “lift 1.3 million Americans out of poverty, including 600,000 children”; “reduce racial and gender inequality”; and “accelerate our economic recovery and build back a better economy.”

The minimum wage

There was no federal minimum wage in the United States until 1938. Since the turn of the century the states had sought to regulate child labor, the hours in the work day, and overtime pay, but in Adkins v. Children’s Hospital (1923), the Supreme Court ruled that a minimum-wage law passed in the District of Columbia was “an unconstitutional interference with the freedom of contract included within the guaranties of the Due Process clause of the Fifth Amendment.” Franklin Roosevelt’s National Industrial Recovery Act (NIRA), which included the first federal minimum wage, was struck down by the Supreme Court in Schechter Poultry Corp. v. U.S. (1933). But just a few years later, in West Coast Hotel v. Parrish (1937), the Court upheld a Washington state law setting a minimum wage for women.

Congress then passed the Fair Labor Standards Act (FLSA), which was upheld by the Supreme Court in U.S. v. Darby Lumber Co. (1941). Along with the Davis-Bacon Act and the National Labor Relations (Wagner) Act, the FLSA is one of the three major pieces of New Deal employment legislation that survive today. The original FLSA established a minimum wage of 25 cents an hour, mandated time-and-a-half for overtime in certain jobs, and set the maximum work week at 44 hours. Although the work week was lowered only once — to 40 hours in 1945, where it stands today — the minimum wage was raised numerous times. The last time the minimum wage was raised was in 2007 when a Democratic majority in Congress passed the Fair Minimum Wage Act of 2007 (H.R.2) that increased the minimum wage from $5.15 per hour to $7.25 per hour in three increments over two years. Eighty-two House Republicans and all but three Senate Republicans voted in favor of the increase, which was part of a larger emergency supplemental appropriations bill. The Republican president at the time, George W. Bush, signed the bill into law.

The federal government allows each state to enact a higher hourly wage than the federal minimum. According to the bipartisan National Conference of State Legislatures (NCSL), “Currently, 29 states and D.C. have minimum wages above the federal minimum wage.” Georgia and Wyoming have a minimum wage below the federal minimum, and five states “have not adopted a state minimum wage: Alabama, Louisiana, Mississippi, South Carolina and Tennessee.” (In those seven states, the federal minimum applies.) In 2020, twenty-four states had increases in their minimum wages. In 2021, Florida became the eighth state, along with California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, and New York (along with Washington, D.C.) to adopt a gradual increase in the minimum wage to $15 per hour. About fifty cities and counties are also gradually increasing their minimum wages to $15 an hour or more.

According to the Bureau of Labor Statistics, about 58 percent of Americans are paid at hourly rates. However, “the percentage of hourly paid workers earning the prevailing federal minimum wage or less edged down from 2.1 percent in 2018 to 1.9 percent in 2019.” Minimum-wage workers tend to be people who are young, have never been married, are unskilled, have no more than a high-school education, work part-time, are employed in service occupations, or work in the leisure and hospitality sectors of the economy.

The arguments

Since Biden was sworn in, Republicans, conservatives, and libertarians have likewise wasted no time in pointing out the problems with an increase in the minimum wage, and especially an increase to $15 an hour.

Republican lawmakers generally oppose the idea. Rep. John Rose of Tennessee said the wage hike “won’t help the stalled job market.” Sen. Tim Scott of South Carolina pledged to “fight to protect businesses from these damaging policies.” Rep. Kevin Brady of Texas (the ranking member of the House Ways and Means Committee) tweeted that raising the minimum wage “HELPS BLUE STATES that can’t compete anymore for growth, jobs.”

In several articles on the minimum wage posted by The Foundation for Economic Education, different authors focus on the deficiencies of one-size-fits-all policies, the negative effects of a minimum-wage hike on the poor, the timing of a minimum-wage increase, the market chaos that results from price controls, and the effects of a higher minimum wage on small businesses.

Martha Njolomole writes,

It’s impossible to determine one suitable “living wage” for all parts of a vast and diverse country like the United States…. The effects of raising the federal minimum wage will be more pronounced in low-cost states compared to those of high-cost states…. If there is one fact that economics can teach us, it’s that “one size fits all” policies do not work. Why? Such policies assume all human beings have on average the same preferences, same opportunity costs, similar level of skill, and the same dedication to achieving their goals…. There are countless fundamental differences within our economy that a one-size-fits-all federal minimum wage can never take into account.

David Youngberg writes,

While a federal $15 dollar minimum wage will help some people, it will hurt many others. Some (if we’re lucky just a few) of the harmed workers will be in high-income areas but the minimum wage increase will devastate the poorest parts of the country.

The timing here could not be worse. Make no mistake: small business owners are already seriously hurting. And employees will suffer perhaps just as much as employers. Even though they’re ostensibly meant to uplift workers, increases in the minimum wage always and inevitably hurt more than they help.

A wage is a price. Prices are essential for order in an economy, so price controls throw markets into chaos.

Brad Polumbo writes,

Raising the minimum wage now would spell a death knell for many small restaurants. But there’s really no question that it would screw over small businesses at the worst possible time. The Targets and Walmarts of the world might well be able to weather a huge spike in labor costs, but countless thousands of small businesses would not survive it.

And of course, there is the obvious. A higher minimum wage “reduces firms’ incentives to hire more minimum wage workers,” especially “when firms are hurting from the pandemic.”

The Cato Institute’s Chris Edwards believes that “minimum wage mandates are a bad idea in general, and they are more harmful when imposed nationwide, since they do not account for regional variations in living costs, policy preferences, and economic structures.” He concludes that “Biden’s proposed minimum wage increase would hurt startups and small businesses, undermine the recovery, and be a blow to the industries hit hardest by the crisis.”

In the conservative National Review, Mario Loyola says that there is a “dark side” of minimum wage increases. They can hurt low-income workers because “many employers choose to lay off workers and automate rather than paying the higher wage” and “others try to make their employees work harder in fewer hours on the job.” Thus, “raising the minimum wage is likely to accelerate the transition from full-time to part-time employment.”

The editors of National Review make the case that “the minimum wage stops labor markets from operating effectively.” They explain that “when it’s illegal to hire workers for less than $15 an hour, workers whose skills are not yet worth that much will find themselves working less or out of a job entirely.” They also point out that “this is a very poor time to start a series of minimum-wage hikes” because “the pandemic has hit small businesses, including restaurants, hard.” But then they conclude that “at minimum, any increase should not start phasing in until the pandemic is under control and the economy is closer to a full recovery.”

A coalition of more than sixty groups, activists, and legislators led by Americans for Tax Reform (ATR) released a letter in opposition to a minimum-wage hike:

A $15 minimum wage would substantially raise the cost of labor at a time when small businesses are already struggling to keep the lights on. Small businesses with thin margins would be forced to pass the costs onto consumers, which could lead to a decline in businesses, a loss of revenue, and layoffs. Businesses that have closed temporarily due to the pandemic may decide not to reopen at all in the face of a higher minimum wage, and many employers will forgo hiring new workers because they cannot afford them.

Even workers who retain their jobs will be worse off under a nationwide $15 minimum wage. Some will lose non-wage benefits such as free parking or meals, and others will have their hours reduced. Workers may not earn any more money under the higher wage, but will face fewer opportunities to work and less benefits when they do.

Workers employed by small businesses and in restaurants, retail, and hospitality would be disproportionately harmed, as would younger workers beginning their careers, minorities, and those in states with lower relative costs of living.

The ATR concludes that “if implemented, a $15 minimum wage would eliminate millions of American jobs, kill thousands of small businesses, and prolong the economic misery COVID-19 has caused our country.”

Writing for the right-of-center American Enterprise Institute (AEI), Michael Strain says, “Don’t just ask whether it would be smart to raise the U.S. minimum wage. Ask when and how.

“Raising the pay floor would hurt many low earners, but careful timing, smart government programs and avoiding overreach could ease the pain.” He believes that “there are better and worse times to raise a wage floor, and there are better and worse policies to enact along with an increase.” Congress should think about both to help it “decide whether it can raise the wage without stifling job growth and economic vitality.”

Strain sees a trade-off: “Large minimum wage increases might raise the wages of some workers while reducing the number of hours they can work each week.” But “if a higher minimum wage were paired with a robust push to increase the skills of low-wage workers, employment reductions would be less severe” because, although the wage floor would increase, “the number of workers who could command that higher wage in the market would also increase.” Therefore, “employment wouldn’t fall as far, and the benefits of a higher minimum wage could be enjoyed by more workers.” He proposes coupling a minimum-wage increase with “more generous earnings subsidies, like the earned-income tax credit,” to “support the incomes of workers who may not benefit fully” from a minimum-wage increase.

Strain concludes, “Wrapping policies around a modest increase would help those with lost income or fewer employment opportunities get back on their feet. Waiting until the economy is healthy would ensure fewer employment reductions to begin with.”

The Congressional Budget Office (CBO), in “The Budgetary Effects of the Raise the Wage Act of 2021,” pointed out how increasing the minimum wage would affect employment:

Higher wages would increase the cost to employers of producing goods and services. Employers would pass some of those increased costs on to consumers in the form of higher prices, and those higher prices, in turn, would lead consumers to purchase fewer goods and services. Employers would consequently produce fewer goods and services, and as a result, they would tend to reduce their employment of workers at all wage levels.

When the cost of employing low-wage workers goes up, the relative cost of employing higher-wage workers or investing in machines and technology goes down. Some
employers would therefore respond to a higher minimum wage by shifting toward those substitutes and reducing their employment of low-wage workers.

Although economist and New York Times columnist Paul Krugman now says, in opposition to his former position, that “there’s just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America,” the CBO concludes that “raising the federal minimum wage to $15 per hour by 2025 would add $54 billion over 10 years to the budget deficit and lift 900,000 people out of poverty, but lead to 1.4 million lost jobs.”

The problem

The problem with most of the Republican, conservative, and libertarian arguments against an increase in the minimum wage is that there is something missing. Now, there is nothing necessarily wrong with their arguments, except, of course, for those that call for increased government intervention to combat the negative effects of an increase in the minimum wage. There are just two glaring things that are missing.

The first thing that is missing is so obvious and so simple that it is surprising that it is never brought up. Nowhere does the Constitution grant to the federal government the authority to set a minimum wage or to regulate wages in any way, regardless of the economic situation. But of course, that applies only to the minimum wage on the federal level. Another thing that is missing is some comment on the arbitrary nature of the target minimum of $15 an hour. Why not $14? Why not $16? If the government can really lift poor Americans out of poverty by increasing the minimum wage, then why not raise it to $25 an hour and lift all Americans out of poverty?

The main thing that is missing, however, can be summed up in one word: freedom. The freedom of employers to offer any wage they want to. The freedom of potential employees to accept or reject the offer. A government minimum wage is nothing but Soviet-style central planning. It has no place in a free society. If government can determine the “correct” price for labor, then there is nothing stopping it from determining the proper price of every other service as well.

There are a number of things that could be said relating to wages and hours in a free society. In a free society, there would be no Fair Labor Standards Act, Bureau of Labor Statistics, or Department of Labor. In a free society, there would be no local, state, or federal minimum wage. In a free society, there would be no government-defined “living wage.” In a free society, no one is “worth” a certain rate of pay or entitled to any particular rate of pay. In a free society, no employee is entitled to be paid as much as any other employee is paid. In a free society, there would be no government-imposed 40-hour work week. In a free society, there would be no government overtime-pay requirements. In a free society, time off in lieu of overtime would be an option in the workplace. In a free society, potential employees freely decide to take a job on the basis of the salary and benefits offered by employers. In a free society, government would not interfere in any way with the employer-employee relationship.

Regarding vacation pay, sick pay, holiday pay, and severance pay, the Department of Labor has said, “These benefits are matters of agreement between an employer and an employee (or the employee’s representative).” That is exactly how it should be when it comes to wages. Why it isn’t is completely arbitrary on the part of the government.

This article was originally published in the May 2021 edition of Future of Freedom.

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