Minimum Wage Proposal: How to raise the minimum wage and benefit private enterprise

15 January 2005

I have actually been mulling over this for a few days. I just have not had the opportunity to write it down until today. Last week on his show, nationally syndicated radio talk-show host Michael Savage said something very out of character for someone who is often dismissed as a right wing extremist. He announced that not only is he in favor of the minimum wage, but that he favors increasing it. The skinny of his monologue was that it is just not feasible to eke out more than a subsistence existence on minimum wage as it stands today. Even though minimum wage jobs are really meant to be entry-level, I recognize that many people simply don't advance beyond this level; this is why, while in theory I oppose the minimum wage, I am loath to support a repeal of minimum wage laws. Despite the fact that I believe that everyone has a responsibility to carry their own weight, that does not mean everyone can or will. Society is going to have to bear the cost of under-producers somehow, be it in increased crime, increased taxes for welfare, or the expense of disposing of the bodies of people who starved to death or otherwise died because they couldn't afford medical care.

Why not, then, as Michael Savage asks, raise the minimum wage? Well, the main reason I oppose raising the minimum wage at this time is that the tax structure in this country is already too oppressive of businesses. Raising the minimum wage significantly would drive more and more businesses offshore and encourage small businesses to make cuts in staff. I have never had to make out a payroll, so I don't know how expensive it actually is to hire an employee. I cannot, therefore, speak to the actual expenses of raising the minimum wage. What I can do, however, is point to the last presidential election.

One of the major issues during the election was the number of American companies relocating offshore. Companies do not incorporate outside of the United States because they don't like America; they do it because our tax structure is so oppressive that it is simply easier and far cheaper to do business elsewhere -- anyone who has had to fill out their own tax form knows what I am talking about. My proposal is to kill two birds with one stone. Call it a win-win compromise. Someone can introduce a bill in Congress that would raise the minimum wage to 8, 10, or even 12 dollars an hour, but such an increase would be conditional on the repeal of all taxes directly on the earnings of a business. Business would probably make more money, even with the minimum wage increase, and workers would have a lot more ready cash to pay for things like healthcare, dental, and automobile insurance. The only loser in the scenario would be government bureaucrats who think that they have a natural right to tax dollars. I think that the decrease in revenue wouldn't actually hurt the government since, with a higher minimum wage, more people will be able to cover their expenses without government assistance and, as such, the Federal government would likely be able to cut back on social spending.

Now, before the Republicans and Libertarians start assuming that I am some sort of socialist, let me explain my position. I used to think of minimum wage laws only from the employer's perspective, and from the position of a Libertarian purist (which I actually am less of than I thought). A Libertarian, or a 'free-market' Republican would say that minimum wage laws interfere with the ability of an employer and a potential employee to contract freely. After all, in the absence of such laws, a person could contract to work for $4.00/hr. if they so chose. And, a typical free-market type would ask, what's wrong with that? If an employer can get someone hired for $4.00/hr., then that is the price the market has set for that job. People who want more than $4.00/hr. for their labor, they would say, are being unrealistic. But are they unrealistic?

It is true that minimum wage laws are an extraneous force acting upon a business owner's negotiations with a worker, but no more so than the person willing to work for less (if that person were not there, the person who wanted to work for more would have the power to bargain for more). Think about it for a moment. A Libertarian will argue that because minimum wage laws interfere with the freedom we would have in a state of nature, they are unjust. But if you stop to consider it, in a state of nature you also have the freedom to murder and steal. No one complains about laws against these things. I will admit that I would be the first to point out that that analogy is almost ridiculous on its face -- but only almost. I mean, murder and theft are one thing, but minimum wage?

If you think about it, though, the lack of minimum wage laws that would allow the lowest priced worker to determine wages for all is like stealing. A majority of workers might not want to work for $4.00/hr., but they will if others do because that forces down the price that employers have to pay and the workers have no bargaining power. When employers bring in cheap labor, they take (steal, of you will) the bargaining power of the other people who are also willing to work, but only for wages above a certain amount. If your chattels are taken from you through coercive means, laws are there to protect you. Why, then, is it wrong for the workers to pass a law to protect the floor on their bargaining price?

Now, you could argue the same thing on behalf of the employers. If they can get the labor for cheaper, why shouldn't they? And isn't it unjust to put a gun to someone's head and order them to buy something more expensive than they want? Well, I think they certainly have a point. However, if labor gets cheap enough, the laboring class's lack of economic power would have a detrimental effect on society as a whole. Low wages are often accompanied by crime and poor health. Both of these things are a drain on society's resources. Imagine if no public restroom was ever cleaned or provided with soap just because some people demonstrated a willingness to use the facilities regardless of condition and without washing up afterward. Such a situation might have lower operating costs, but society would be dirtier as a result and the chances of disease spreading would go up.

Or consider this example of something that you probably have more experience with. If you have ever been to a hospital, you may have noticed that your bill is high. One of the reasons it is so high is that the hospital cannot turn down basic care to people who need it. This means that sometimes they have to treat people who cannot afford it. Since the hospital cannot stay open unless it at least breaks even, it has to charge more for the people who can pay. And the reason that many people cannot pay is because they make minimum wage. If you can make a company stop polluting the ground water because of the cost to you, why can you not pass a law to raise the minimum wage, which also affects you? Why should you have to pay a worker's hospital bill when you don't even know them? Only because the employer can't or won't pay the workers what they need to pay for their own care. It all goes back to cost. Is the societal cost of an action worth it? Generally, you want to respect the rights of every individual, but you also want to choose the policy that has the greatest aggregate benefit for society.

In the case of minimum wage, it is, in my opinion, impossible to raise it right now without driving more American businesses overseas. That would have too high a societal cost because it would result in increased unemployment, which is worse than low wages. If, however, we cut taxes to businesses completely, they would be able to afford to pay significantly higher wages and still turn a greater profit than they currently do. This would be very good for society, because greater profit potential would attract more jobs here despite the higher minimum wage and that would cause the economy to expand and more jobs to be created. The higher minimum wage would benefit society because workers could be more self-sufficient and there would be a lower incentive for crime -- both situations decreasing the operating cost of government. Thinking abstractly, as I sit here at my computer, this sounds like a win-win. I hope any Congresspersons who read this think so too.

As a post script, if you know anything about me, then you know that I am a supporter of the FairTax. The FairTax would necessarily eliminate all federal taxes on business -- something that the Democrats won't like at all. If I might make a humble suggestion to the Republican backers of the FairTax bill (H.R.25, S. 1493 [now S. 25]): offer an increase in the minimum wage as a compromise for the votes of the Democrats in support of the FairTax. Democrats and Republicans alike ought to go for this since they are all political animals up there and both sides would have to be crazy to pass up an opportunity to make each of their constituencies happy at the same time. A word of caution, though: this should not be seen as an open invitation to amend the FairTax bill. The sponsors should make it clear that this is a one time quid pro quo -- Republicans get the FairTax and the Democrats get higher minimum wage; the American people get both. I think it's a win-win-win.

posted by The Sovereign Editor | 3:11 PM

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