MINIMUM WAGE FRAUD
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In the United States, federal and state politicians are eager to raise the minimum legal wage—again. They have raised the minimum legal wage a dozen times before, but they complain that it is never enough. The prices of food, clothing, and shelter keep going up faster than wages.

So politicians offer to solve this problem with a new law to raise wages. Don’t fall for it. Politicians are the cause of the problem, not the solution.

Who is responsible for rising prices? A general rise in prices is caused by government monetary policy. Yes, Alan Greenspan and his Federal Reserve boys print money and cause inflation—on purpose. As time passes, it takes more dollars to buy the same goods. Politicians could tell Alan to stop printing money, but they don’t. They don’t stop it because printing more money is useful to the spending plans of politicians. In this manner, politicians rob the value of wages. State politicians are also responsible for rising prices. They don’t print money, yet they raise prices by raising taxes. State politicians could stop taxing the earnings, savings, and purchases of workers, but they don’t. They don’t stop it because raising taxes is useful to the spending plans of politicians. Politicians rarely offer solutions that reduce their power to spend.

POLITICAL MATH

Politicians want to make it illegal to work for less than $7 an hour. The idea is quite popular, because higher wages are popular. But a minimum wage law is not just an expression of desire. It is a threat of jail. And who is threatened? The law threatens voluntary behavior between consenting adults.

If an employee voluntarily agrees to work for $5 an hour, and the employer volunteers to pay, they both benefit or they wouldn’t do it. They don’t threaten each other. But politicians think that people are too stupid to make voluntary decisions for themselves. Politicians prefer threats.

Politicians won’t let people work voluntarily for $5 an hour, but they will allow people to work for nothing. When someone agrees to work for $0 an hour, then politicians consider it volunteer work.

Politicians like volunteer work. They are always asking people to work as volunteers for elections, as volunteers for legislative internships, or as volunteers to clean up campaign litter.

Either politicians aren’t very good at math or they aren’t as concerned about workers as they pretend. Working for $0 an hour is less than working for $5 an hour.

So when politicians ask volunteers to work for nothing, they are encouraging people to work for less than the legal minimum wage. This is legal because politicians have granted exceptions to the law.

OTHER EXCEPTIONS

Small business owners are also granted a unique exception. It is legal for a business owner to pay himself or herself less than $5 for each hour worked—or even less than $0 an hour when his or her business loses money. But it is not legal for that small business owner to pay any of his or her employees less than the legal minimum wage.

There is another exception for schools. How does this work?

Businesses pay inexperienced workers to get on-the-job training. But minimum wage laws make it too expensive to train many of these potential new workers. Since inexperienced people are not allowed to be paid for training, they must pay schools for training instead.

Schools are then allowed to arrange for students to work in business as interns. Interns are paid less than $0 an hour—negative dollars an hour.

Negative dollars? Yes. To qualify as interns, students must enroll in school and pay thousands of dollars in tuition. This more than offsets pay, if any, that students might get from the business. This is done so that a school will award “credits” for supervision and proof of the experience.

This works especially well for schools. But schooling doesn’t always work so well for students. By the time that young people are signing up to be interns, most have already spent 12 years of their lives in government schools and a surprising number of them still don’t have enough skills to earn a living.

$100 AN HOUR?

This situation in Hawaii illustrates the point for any of the states. If Hawaii politicians could simply raise wages by passing a law, then why not pass a law that would raise the legal minimum to $100 an hour? Surely every worker would be happy with this—until customers got the bill.

The cost of a vacation in Waikiki might soar from $2000 to $20,000 and tourists would flee for the beaches of Florida. The cost of an aloha shirt might soar from $50 to $500 and customers would scramble for shirts from Mexico instead of Hawaii. The cost of university tuition in Hawaii might skyrocket from $10,000 to $100,000 and students would transfer to California instead. Businesses in Hawaii would shut down, automate, or leave. And crowds would race to the state capitol to demand a repeal of the law.

Therefore the key to a popular minimum wage law is to demand only a modest rise in wages—up $1 or $2 an hour instead of $100 an hour. Raising the wage a little bit divides the workers between those who get a raise and those who lose their jobs.

Those who lack seniority or skills are the first to lose their jobs. Once these people are pushed off the career ladder, they join the unemployment roll, the welfare roll, or the school roll.

Economist Walter Williams calls these minimum wage laws “The New Jim Crow Laws” because of the harmful effect on young people—especially ethnic minorities. In the 1940’s the minimum legal wage was low and covered few jobs. The unemployment rate of young white men was 10% and the unemployment rate of young black men was actually lower at 9%.

As the minimum legal wage was raised, and as coverage expanded to more jobs, the unemployment rate of young white men rose dramatically to 18% and the unemployment rate of young black men soared to over 37%. Ironically, politicians claim to help the very people whom they hurt the most with such laws.

A PENNY AN HOUR?

Politicians talk about the minimum wage as if the law was the only obstacle to greedy employers. Wouldn’t greedy employers pay workers a penny an hour if it was legal?

But this does not explain why most employers pay most workers far more than the minimum legal wage. Employers don’t have to pay more, but they do? Why?

They do so because a higher than minimum wage is worth it to both parties. When an employer and an employee agree on a wage that is satisfactory to both, they voluntarily enter into a contract. Their values and motives may be different, but this is how the market mediates the values of millions of players in a free society.

Politicians don’t understand this. Politicians believe that their own values and motives are superior and that they can dictate value to others. But they cannot force value to exist where it doesn’t exist. They can force prices, but not value. Proof of this is the price that we are all forced to pay for the salaries of politicians.

Ken Schoolland is a member of the Board of Directors of the International Society for Individual Liberty (ISIL). He can be reached at: schoollak001@hawaii.rr.com