The Minimum Wage; R. Koopman

106 The Minimum Wage-Good Intentions, Bad Results by Roger Koopman I deas have consequences, Richard we.aver once wrote. They pace the course of human history - both good ideas and bad. And while intentions may be honorable, the passing of time has proven that, in the long term, you can't get good results from bad ideas. The minimum wage is a classic example of a good intention and a bad idea. The idea behind minimum wage legislation is that government, by simple decree, can increase the earning power of all marginal workers. Implicit in this idea is the notion that employment is an ex ploitive relationship and that business owners will never voluntarily raise the wages of their workers. Businesses, we are told, must be coerced into paying workers what they deserve, and only politicians know what this is. Not only does this line of thinking run con trary to the most basic economic principles of a free society, but it is also patently illogical. If government could raise the real wages of mil lions of Americans by merely passing a law an nouncing that fact, then why stop at $3.35 per hour, or $4.65, or even $10? Isn't $500 per hour more compassionate than $50? Absurd, you say, and I would agree. But the "logic" is perfectly consistent with the idea of a minimum wage, once you have accepted the premise that political decrees can raise wages.

What does make wages rise? It is most cer tainly not government edicts that simply re arrange and redistribute existing wealth. Wages rise in response to the creation of new wealth through greater productivity. The more that a society produces per capita, the more there is to distribute through the marketplace in the form Roger Koopman operates a private employment service in Bozeman, Montana. of higher wages, better benefits, and lower prices. The "bigger economic pie" concept is not complicated in the least, and yet it is a principle that seems to elude us time and again in matters of public policy. We know instinctively that government cannot create or produce anything. It regulates, confiscates, and consumes, all at the expense of the private economy. And yet we still believe that government can wave its magic wand with laws like the minimum wage, and we all will be better off. Politicians engage in this deception to buy political favor from special interest groups. We keep falling for these· political deceptions be cause our focus is on short-term personal gains rather than on the long-term consequences to the entire nation. We see the apparent benefit of having our own wages increased. But we don't consider the nameless victims of the min imum wage hike who will lose their jobs be cause the. government has priced them out of the labor market. (It is precisely because min imum wage laws eliminate low-skilled workers from competing in the job market that orga nized labor lobbies Congress for massive min imum wage hikes.) Commenting on the minimum wage, economist Henry Hazlitt put it succinctly: You cannot make a man worth a given amount by making it illegal for anyone to offer him less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of ren dering. In brief, for a low wage you substi tute unemployment. You do harm all around, with no comparable compensation.!

The net loss to society that results from this sweeping act of "wrongful discharge" is stag gering. Those losses include: (1) The loss of employment to the individual himself, (2) the shrinking of the economic pie by the loss of his productive contribution, (3) the financial loss to society in supporting him iIi his idleness (un employment compensation, welfare, etc.), (4) the financial loss in funding useless job training programs and other government efforts to get him re-employed, and (5) the net loss to society in having consumer prices driven up to cover the higher labor costs, and the loss of market share to foreign competition that may occur. The cruel irony of the minimum wage is that it harms most the very segments of our society that it is intended to help-the unskilled poor and the inexperienced young. The evidence to support this is overwhelming, and it is the black community that is the hardest hit. In the 1950s, black teenage unemployment was roughly that of white teens. Following years of steady increases in both the level and coverage of the Federal minimum wage, over 40 per cent of the nation's black teenagers are now unem ployed.

Just look at all the jobs that have been abol ished by the minimum wage - good and worthwhile jobs for those who are taking their first step on the economic ladder. Movie ushers, gas station attendants, caddies, fruit pickers, dishwashers, fast food help, and a wide variety of other entry-level job opportuni ties have been either cut back or eliminated be cause the minimum wage has rendered them unaffordable. How tragic this is, when you consider the true value of these low-level jobs to young and unskilled workers. Reflecting on his early years in a Philadel phia slum, black economist Walter Williams observed: None of these jobs paid much, but then I wasn't worth much. But the real value of early work experiencesis much more impor tant than the little change a kid can earn. You learn how to keep a job . You learn how to be prompt, respect and obey superiors, and de velop good work habits and attitudes that can payoff in the future. Additionally, there is the self-respect and pride that comes from being financially semi-independent. 2 107 If a young person is willing to wash cars for $2.50 an hour to gain work experience and self-esteem, is it the right of Congress to tell him he can't do it? Is it, in fact, the right of any politician to make these kinds of economic choices for a free people?

Commenting again on the minimum wage, Williams makes this critical observation: It is important to note that most people ac quire work skills by working at "subnormal wages" which amounts to the same thing as paying to learn. For example, inexperienced doctors (interns), during their training, work at wages which are a tiny fraction of that of trained doctors. College students forego con siderable amounts of money in the form of tuition and foregone income so that they may develop marketable skills. It is ironic, if not tragic, that low skilled youths from poor families are denied an opportunity to get a start in life. This is exactly what happens when a high minimum wage forbids low skilled workers to pay for job training in the form of a lower beginning wage.3 In a free society, people must have the right to offer their services in the marketplace for whatever price they choose, whether they are workers serving employers or businesses serving consumers. It is by this process that productivity, wage rates, and prosperity are maximized. Government has no more business objecting to a low wage rate for a menial job than it has objecting to a business that offers its services or products for a low price. Govern ment intervention in these matters distorts eco nomic decision-making, misallocates scarce re sources, and destroys personal liberty.

If we are to remain a free people, we need to start trusting freedom, and jealously guard our right to make our own choices about our own lives. Repealing the minimum wage law would be an excellent place to start. 0 1. Heny Hazlitt, Economics in One Lesson (New York: Ar lington House Publishers, 1979), p. 135. 2. Walter Williams, "Wage Laws Keep Teens Jobless," Colo rado Springs Gazette Telegraph. May 16, 1986 (syndicated column). 3. Walter Williams, "Government Sanctioned Restraints that Reduce Economic Opportunities for Minorities," Policy Review. No.2 (1977), p. 11. (Quoted in Poverty and Wealth: The Christian Debate Over Capitalism, by Ronald H. Nash, [Westchester, Illi nois: Crossway Books, 1986], p. 122.) 108 The FarlD Credit Crisis by E. C. Pasour, Jr. F arm credit problems are front page news. In early 1987, 104,000 commercial farm operators (17 per cent of the total) with $28.4 billion of debt were considered to be "under financial stress" so that lenders could lose $6.3 billion on these loans. 1 However, the amount of financial stress in agriculture varied considerably from region to region, being greatest in the Northern Plains, Lake States, and Com Belt.