Monday, October 26, 2009

Repealing Minimum Wage Saves Jobs, Helps Poor

Last Wednesday, Dr. Margaret McGuiness gave a speech on entitled “How Should the Church Take Care of the Poor?” During her presentation she opened up the floor to the audience and invited their suggestions to help those living in poverty. Several of the suggestions included ones I agree with. Others I did not. Among those I disagreed with was the suggestion that we should raise the federal minimum wage.

For decades people thought that raising the minimum wage actually helps the poor. In fact, it does exactly the opposite.

We have to realize that low wages are a good thing if that is what the job is worth. They keep people employed. We have to keep this in mind when considering the morality behind repealing the minimum wage. Let's see how this would work within the framework of several moral theories.

Utilitarianism states that it wants the greatest good for the greatest number of people. Repealing the minimum wage should be attractive to the utilitarian because it creates more jobs for more people. Yes, the wages will be less. But at least people will have jobs. Perhaps this way people will learn how to save more and increase their capital.

For the consequentialist, that is those who do something primarily for the reason that it produces good consequences, would also find this appealing. If a consequentialist were to ask me to raise the minimum wage, I would respond to him with the following question: Have you weighed the consequences? If he followed his consequentialism to its logical conclusions, he would have to agree with me (to see how read my scenario below). He would have to agree that reducing the minimum wage has good consequences; it keeps jobs for the poor.

What about the group egoists? How would they feel about the minimum wage ban? According to Lawrence H. Hinman, group egoists would say that their response requires them to "set aside self-interest and respond directly to relieve the suffering of others, even [if]...sacrifices [must be made]." Well, this wouldn't be too hard for the group egoists either. Once they understood that more jobs would be created through the repeal of minimum wage laws, how could they resist? Wouldn't advocating the repeal of this law qualify for the response to "directly relieve the suffering of others?" Even more appealing would be that no sacrifices would be made!

Finally, what about the libertarians? First, libertarianism (which overlaps with my personal belief in the Bible and my constitutionalism) says that, according to Hinman, "hold[s] the right to property to be practically as strong as the right to life." Also, libertarianism says that "that government has very few, if any, rights to deprive individuals of their property." Libertarians then see the minimum wage as nearly theft from the person demanding minimum wage, or minimum wage increase.

Forcing employers to pay a minimum wage is unjust. To see how this works, let’s take my website,, for example. As owner and chief operator of my site, I have saved enough capital in order to begin to hire employees. I decide I want to hire an editor and a graphic design artist to maintain the site. Our revenue is based mainly upon $1 monthly subscriber payments. On our first month we have about 2000 subscriptions and our earnings are $2000. My employees are paid $3 per hour and work eight-hour shifts five times a week for one month. These are low-skilled workers and they leave happy each month with $480 each. I am worth $6 an hour and receive $960 a month. That leaves our total spent on payroll at $1920. This leaves the company with an $80 surplus to save and possibly use for improving the quality of services, or bonuses, which will leave workers wanting to increase their productivity.

Our business does so well that I decide on the second month I want to reduce the price of subscriptions to $0.90 to gain more subscriptions. But immediately I am told by an outside agency that I must raise the wage I pay my workers to a minimum $4.50 because it will improve their quality of living. This means I must at least rake in either $1,840 more worth in subscriptions each month via an increase in subscribers, inflate the price of the subscription, or cut one job in order to keep the company afloat.

The first option is unfeasible. I would have to find 1,840 more subscribers in order to keep my workers on their payroll. The second one is also unlikely. If I inflate the subscription price to $1.92, a 92 percent increase, it will prove unpopular and unaffordable for many of my subscribers. Also, it hurts my subscribers because now they have to pay 92 percent more out of their incomes which could easily be directed toward their personal savings. The third option seems to be the only alternative. One employee must lose his job in order for me to keep my subscribers paying low costs. I take the third option.

At the end of the day, has maintained its revenue. However, the site did so at expense of a worker. This example is exactly what can happen, and has happened, when the minimum wage is raised; it represented a 150 percent increase in wages in one month - it is a jump that is unrealistic. But, this is close to what happened over four years (2006-2009) when the minimum wage jumped from $5.15 in 2006 to $7.25 in 2009, a 140.77 percent increase over time. Obviously, such a jump would never work in reality (the one-month jump). That's why it works better over time. It causes a slow inflation to creep in. It's pretty slick.

During a recession, people shouldn’t be suggesting that to help the poor the minimum wage should be raised. In fact, the exact opposite should happen. They should pressure their government to abolish the minimum wage. That way, employers would be free to set prices as low as they want.

Related Articles:
Minimum Wage Protects the Rich

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