Is minimum wage good for society?
- The national minimum wage was created in 1938 by Congress under the Fair Labor Standards Act of 1938 at the rate of $0.25 per hour. Since then, the minimum wage has increased $7.25 an hour as of July 2009.
- In 2021, a total of 24 states approved raising the minimum wage with New York first increasing the state-level minimum rate to $12.50 on December 31. Nevada, Oregon, and the District of Columbia followed suit in July 2021.
- The US Bureau of Labor Statistics states '1.1 million workers with wages at or below the federal minimum made up 1.5 percent of all hourly paid workers” in 2020.
- Sixty-two percent of Americans favor raising the federal minimum wage to $15 per hour according to Pew Research Center.
The state has the duty of ensuring the safety and stability of all people. Businesses naturally want to pay as little as possible for labor costs and, without government intervention, have too much leverage to force workers to accept less remuneration. A minimum wage ensures that individuals can support themselves and their families. Still, if we think of wage earners as simple gears in the wheels turning the economy, the importance of stable wages becomes clear. These earners spend their money by paying rent, buying groceries, paying for entertainment, and everything that makes up the economy. Ensuring a minimum wage matched to the cost of living allows full participation in the economy as customers for other businesses.
While a fair minimum wage ensures a sustainable standard of living, it also ensures the state's ability to collect revenue through income tax. If private businesses were allowed to drive wages down, the percentage of money going to the government would also be reduced. This could have chain effects with tax breaks, subsidies, and other benefits to businesses needing to be reduced.
Finally, those arguing against minimum wage often say unemployment is a choice, insinuating that the unemployed choose leisure over work. Indeed when there is a low or no minimum wage, the difference between working hard at an unskilled position and simply collecting slightly less in benefits seems trite. It is, therefore, the state's duty to ensure a substantial wage is legislated and available for all American workers across state lines. While some would argue the same could be achieved by reducing benefits, this becomes a 'race to the bottom' situation, and one which could lead to political unrest as the hardworking poor often resent those perceived to be taking the easy way out.
For the record, the original federal minimum wage law, the 1931 Davis-Bacon Act, that required 'prevailing' wages was enacted to keep minority-owned contractors from bidding on federally assisted construction projects. In other words, it was racist in origin. While minimum wage laws today aren't intended to be racist, they have the effect of hurting low-skilled, often minority job applicants disproportionally.
Because minimum wage laws artificially inflate the value of a job, it keeps low-skilled, first-time job seekers out of the market because its 'increases cause the price of labor to go up,' which results in employers hiring less labor and whom employers hire. An increased minimum wage leads employers to be much pickier in their hiring than they otherwise might be. Additionally, minimum wage laws raise the difficulty for first-time business owners trying to start a new business. It also induces existing business owners to seek automated solutions that may be more cost-effective as the minimum wage increases.
As economist Thomas Sowell noted, 'Most people in the lower-income brackets are not an enduring class. Most working people in the bottom 20 percent in income at a given time do not stay there over time. More of them end up in the top 20 percent than remain behind in the bottom 20 percent.'
Sowell further points out that in countries with lower minimum wages—or none at all—the unemployment rate is regularly less than high minimum wage countries. Most policymakers forget that the real-world minimum wage is zero—the rate workers receive when the government-mandated wage rate prices them out of the workforce. Minimum wage laws have the real-world effect of keeping low-skilled workers out of the job market and reducing opportunities for employers to hire more of those low-skilled workers, many of whom are minorities.