Minimum Wage, the Market, and the Inevitability of Unintended Consequences

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During dinner last night, I was informed that waiters sometimes have to pay a percentage of the cost of the meal they served to the restaurant where they are working since bus-boys and other employees who don’t have the same opportunity to get tips but are still given the same wage as any tipped employee (usually around a few dollars). The person who told me all of this didn’t hesitate to blame it all on the minimum wage being too low. Business owners will always pay the least amount they possibly can, so we just need to make them cough up to help the poor and low-skilled workers receive a higher income, right?

Not so much. While there is a vast amount of empirical resources on the subject of the minimum wage I want to focus on a basic fundamental principle to which we all should be able to agree. This principle is that any business being run for the sake of profit will always accommodate to find the most profitable means to its end. If the business encounters obstacles which critically limit the ability of that business to turn a profit, then the business will either circumvent that obstacle, or cease to exist.

By the same principle, if a government causes laborers to become a greater obstacle to profit than they would be otherwise, then businesses will either adapt to circumvent those employees or it will cease to exist if the cost of labor becomes too great. In either case, the laborers are the victims of the government intervention which was intended to help them.

This principle is nothing new. Many have preceded me in arguing for it. It’s just basic supply and demand applied to labor.

But since my friend at dinner last night seemed foreign to the concept, I want to lay it out in the most understandable way possible within the context of their argument for a minimum wage based on cheap restaurant owners.

So back to my conversation at dinner. I pointed out that large companies who can afford to innovate will find cheaper alternatives to employees which they are obligated to pay more than the value which the market would naturally demand.

I hardly got this idea out of my mouth before I heard, “Let me stop you right there!” My friend passionately argued that a minimum wage will definitely cause hard times for low skill workers since they will inevitably lose their jobs, but it is okay since they will adapt and get higher paid jobs anyways.

But wait… the entire point of minimum wage was to help people make more at their low-skill jobs. Now we are suddenly okay with letting them lose their entire income because their low-skill labor is no-longer worth their moderate to high-skill wage?

We haven’t even mentioned that small business owners who can’t afford to adapt to a higher minimum wage will no-longer be able to stay in business because the cost of labor is too great compared to their income.

This is nothing more than social-Darwinism in which the fittest, most skilled workers whose labor is worth as much as or more than minimum wage will keep their jobs while the low-income workers will be forced to adapt or starve in the face of the market’s adaptations to the government’s imposed artificially-high cost of labor.

So what’s the alternative?

In a market left to itself, employers and employees alike will adapt to the market to find a point at which employees will consent to a certain wage for a certain service. Employers naturally will pay as little as they can to obtain the labor they desire (ubless they have the heart and funds to pay more out of benevolence in which case that business will still pay no more than it can afford for that labor if it is to stay in business). If the wage they offer is so low that nobody will take the position then they will have to raise the wage until potential employees are sufficiently incentivized. This creates entry level positions for low or unskilled workers who are willing to take lower wages for an unskilled position while necessitating higher wages to incentivize increasingly scarce employees who are equipped and willing to take more demanding jobs.

So what about the waiters being forced to give money back to the restaurant, or the bus boys being paid far less than seems just? The inevitable unintended consequences of minimum wage laws will adversely affect these workers in ways that are much less easily avoided than putting in their two weeks notice and working somewhere else which offers sufficient incentive at a rate which is still profitable to the employer. A free market will maximize the number of positions available to the bus boys and waiters of the world, but a minimum wage will only make it more difficult for them to find work and income through its inevitable unintended consequences.

Kyle Huitt
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Kyle Huitt

Part of the multitude that has lost their faith, but part of the few that has returned to it. This blog is my attempt to describe why I returned to the faith, and to maybe prevent somebody else from leaving it in the first place. Studying philosophy and history at Hillsdale College. Member of Delta Tau Delta fraternity.
Kyle Huitt
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