I had supper with two friends not too long ago. The gamut of our conversation topics ran wide but I have no doubt that the crux was on morality of free market and minimum wage policy in particular. A friend expressed how such philosophy fails to provide warmth to the struggling people whom work day and night to provide for themselves and perhaps, others. He pointed to the opposition to minimum wage and how free market supporters are insensitive to the hardship the needy face as proof. He presented his point so passionately that it pained me to disagree with him. Yet, I must disagree and went on to illustrate how such insensitivity within a larger picture is really a morally superior and caring position to take.
Scarcity is a real issue and minimum wage supporters unfortunately do not grasp the idea well. If scarcity is a tale belonging to the lands of the fairies, then we would be living in the land of the fairies. Sadly, this is the real world with harsh reality of constraints. Within the issue of minimum wage, the policy imposes more constraints than necessary on the economy, turning a harsh world even harsher from a big picture.
Perhaps I am stating the obvious but minimum wage policy increases wages of the already employed. Of course, the employed have to have wages below the floor if they are to benefit from the policy. Here, the key word is employed. The policy benefits limited fraction within the society and like many other things, it is fueled by self-interest when it is fought by those that tend to benefit from it. Or to put it more bluntly, plain old greed. Those that support such policy because they think it is a compassionate thing to do however simply fail to understand the economics behind the policy, or seems to limit their consideration to limited section of the society.
The story of minimum wage does not end where supporters of such policy would like it to be. When one is playing a game of domino, one really has to be careful on which pieces one would like to touch.
Once the employed, at least the ones that riped the fruits, received their pay hike, of course they would be happy. The same cannot be said for business owners and unemployed others. And trust me, most of business owners are not multimillionaires; a majority of them are simply trying to make a living too. Higher salaries increase cost for the affected employers. Money does not grow on trees and so, with greater wages to be paid, employers cannot afford to hire more people.
Please do not get me wrong. It is not always wrong to pay individuals with high wages. If a person is capable, the person deserves every one bit of it. It is productivity that determines wages. A policy that pays somebody extra for something trivial, something that too many people could do better or cheaper than him is a bad policy and this most of the times includes minimum wage policy.
And where does this lead?
One of the direct results is the less employment opportunities. The impoverished that require jobs are denied of opportunities because of a policy that benefits a certain section of the society at the expense of another group.[1]
For those those that believe opposition to minimum wage is governed by cold rationale, do kindly explain to me this: what about the unemployed? Are the unemployed expendable?
How does opposition to minimum is colder than a policy that robs many from employment opportunities while the beneficiaries of the policy enjoy higher wages that do not reflect productivity?
Where is the morality of minimum wages when it keeps the improvised from gaining employment? Where is the morality of such policy when it denies decent people from employment opportunities?
For those that fight for minimum wages and stand to benefit from it, this is where selfishness, instead of sharing the bench with supporters of free market, is the minimum wages proponents’ best friend.
[1] Note — minimum wage policy may increase employment under specific conditions but we usually face the typical model where minimum wage imposed above equilibrium leads to increased unemployment. Under a monopsony model, I would to a certain extent support minimum wage to correct imperfection in the market.