Arguments against the Minimum Wage

Arguing against the Minimum Wage has often been the preserve of the ‘right’ (presuming the simplistic and problematic left-right dichotomy that we impose as a conceptual framework to make sense of contemporary politics); however, the ‘left’ also suffers heavily from the Minimum Wage and, despite it purporting to be a pro-poor law, it works to harm them. In this article, I seek to revisit some arguments that well-intentioned peoples make when they advocate (increasing) a Minimum Wage.


On Moral Grounds


The moral argument that people inevitably face when arguing against a minimum wage most often goes along the lines of “Oh, so you think its okay for firms to pay workers whatever they want?” Not at all – this argument supposes that we only care about firms’ freedoms as opposed to workers’ freedoms or peoples’ freedoms more broadly. The converse to this is – “why shouldn’t workers be allowed to offer their time at the price they see fit?” The freedom works both ways and a legally and coercively enforced minimum wage works to limit both workers’ and firms’ freedoms but, more interestingly also trade unions’ freedoms (which I will turn to in a later section).


Perpetuating injustice, discrimination and poverty


Imagine, theoretically, that a minimum wage is imposed on a society where there previously was none – it will inevitably affect those on lower incomes the most. Empirically, there are fierce debates concerning the real effect of an imposed minimum wage upon employment; this argument, however, comprises of an illustrative, theoretical exercise. So, let us imagine that the firm employs 10 workers – all of whom are paid $4/hour each. Now, let us suppose that a minimum wage of $5/hour is imposed and that, holding all other things equal, the firm now has to lay off two people and only employ 8 as opposed to 10 because that is all that the employer can afford to pay with the new, legally imposed and coercively enforced minimum wage.


Firstly, this serves to enrich the 8 workers at the expense of the other two’s jobs and, therefore, reinforces animosity and divisions within and amongst those on low incomes. However, let us examine the case of the two laid off workers more closely by considering two possible scenarios. The first scenario is that all 10 workers differ in terms of productivity and the second scenario is that the 10 workers have the same productivity.


In the first scenario, one would rationally expect that the workers with the lowest productivity could be laid off and, although this may seem fair to some, the minimum wage forcibly punishes those of relatively low productivities. The relatively low productivity could be due to a variety of reasons that are beyond a person’s control (family circumstances, upbringing, education, institutional discrimination, sociocultural conditioning etc.) and it works to perpetuate poverty for those with relatively ‘low’ productivities. There is also the possibility that those who actually have higher productivities are still laid off because of a perceived lower productivity due to institutional factors such as sexism, racism and so on.


In the second scenario, you have the case of the employer having to lay off people of the same productivity – so the 2 fired workers are identical in terms of productivity and output to the other 8 employees but they just have to be laid off. In this case, the employer would end up laying off based on personal preference – most simplistically, it could be because the employer enjoys their company, their attitude, their dress sense, their image etc., for example, on a more sinister note, the employer could unjustly lay people off of similar productivity based on traits that are out of the workers’ control such as sex and race (and institutional sexism and racism definitely exists) – in this sense, the minimum wage can actually work to perpetuate institutional discrimination such as institutional sexism and racism.


Indeed, an even more sinister view still of how this perpetuates poverty: not only do we deny them (the oppressed peoples with various qualities) good education, upbringing and so on, but we insist on taking away the only weapon with which they can fight in the marketplace when they have been denied the chance to be as productive as others due to factors beyond their control; they cannot even determine the price at which they offer their labour and, from which, they can gain work experience to progress further.


Privileging large trade unions at the expense of smaller ones


It is no wonder that the large trade unions are the most prominent lobbyists of governments to increase minimum wages – on the face of it, they look like the savior of workers but, speak to many trade unionists themselves and they’ll tell you that they often wonder whether the unions truly represent their membership. Of course, the large trade unions have the political resources to lobby government for a higher minimum wage and that, amongst other things, keeps them in business; however, smaller trade unions are flattened and crowded out because they do not have the political resources to do so and lobbying employers locally is more difficult when there is a higher pool of poor, unemployed people who are ready to undercut you due to the layoffs that the minimum wage induces over time.


In this sense, trade unions and their members across industries are forced to lobby and beg governments whilst constantly crowding out smaller workers’ unions who are unable to do so – this is a way by which trade unions are inhibited from flourishing across industries and communities. In this sense, the minimum wage is actually a pro-large trade union law and an anti-small trade union law in the same way that many policies enacted by governments work to enrich large corporations.


Slowing wage growth and inhibiting workers’ collective and individual bargaining power


From the aforementioned fact that smaller trade unions are crowded out through a minimum wage and larger trade unions are enriched whilst many end up becoming unemployed, workers end up losing collective bargaining power (especially where their industry is not adequately represented by large trade unions and, indeed, many trade unionists wonder themselves whether the unions adequately reflect their ‘membership’) not only because it is harder for them to organise and vocalise collectively but also because there is a larger pool of unemployed from which their protests can be undercut, silenced, deterred and punished. For example, if initially, if there were 10 workers who were paid $4/hour each instead of 8 workers who got paid $5/hour each, even though they are all being paid marginally less, there are more of them so they can band together collectively and, if one of them is threatened to be laid off, there is a smaller unemployed pool of labour from which the employer can hire so the employer must take their demands more seriously. However, with a smaller pool of workers who are all paid marginally more each, even if some vocalise their concerns, the employer will simply punish them, deter others from vocalising concerns and simply hire from the larger unemployed labour pool since it is easier to do so.


Furthermore, in the modern era, where there is a greater degree of information-sharing and availability, workers from low-income backgrounds are more likely to be able to share details about employers who do not take reasonable demands seriously and this will crowd out such employers from the marketplace. Essentially, through a lower unemployment rate, greater collective and individual bargaining power, abolishing the minimum wage would result in greater wage growth in the long-term as well. In turn, this would result in higher consumption and more employment (through a Keynesian multiplier effect, for example) and it would help contribute to breaking the poverty trap and its cyclical snare of many (or even most) on low-incomes.


Unpaid work and the minimum wage: three, real-life case studies


We currently see a situation where, for example, it is okay to take on unpaid work but it is not okay to be paid less than the minimum wage, strangely enough. So, for example, if a Minimum Wage of $5/hour is in place, it would be illegal to work for $3/hour but perfectly legal to work for free (as an unpaid intern or volunteer, for example). However, this works to privilege those who can afford to work for free as opposed to those who need to support themselves on a wage. I will now give, a real-life, illustrative example from University.


I know three people – Ben, Cindy and Jason. Ben works part-time at craft beer bars in addition to his degree where he serves craft beer and/or real ale in order to ensure he can maintain himself whilst studying at University. He actually earns more than is necessary (earning a bit more than the minimum wage) for his maintenance (since he also receives a sizeable maintenance loan and grant from the student loans company which is means-tested and he receives relatively more due to coming from a lower-income household) so he is able to save some of the money earned whilst also ensuring his maintenance. What is most fortunate for Ben, furthermore, is that although many students do not want to end up in the alcoholic beverage industry, Ben actually wants to learn how to brew beer and start his own micro-brewery (having changed his mind about wanting to become a lawyer after learning about craft beer and real ale) so this works out well for him in many ways whilst at University. Ben, however, does not have the time to do unpaid/voluntary work in addition to this since he is already stretched for time through his studies and paid work so the option is largely unrealistic and infeasible for him.


Now we have Jason – Jason works at a large, well-known retailer part-time and is paid well for the work he does in addition to his studies at University. He also needs to work to support himself at University. Jason, however, in addition to his responsibilities as a student and his paid work, is highly productive and is able to contribute to voluntary work at the Students’ Union and with the University more broadly. Being relatively highly productive compared to his peers, Jason can adapt and juggle many things (whilst many others cannot) and, although he had to support himself through work that has transferable skills but does not necessarily relate directly to his future career in Government, he is not inhibited by it since he was also able to undertake relevant work that involved engaging with stakeholders, reconciling and incorporating diverse preferences in the University’s policymaking process and so on. In this sense, Jason will be come to known as an exemplary, inspirational individual although many others will not be able to follow in his footsteps because they are simply not as highly productive as him.


Finally, we turn to Cindy. Cindy comes from a middle-class, relatively high-income background and she does not need to do paid work in order to support herself at University. As such, she is able to take on several unpaid, voluntary positions at the Students’ Union and at a variety of NGOs that are extremely relevant to her future career ambitions and align almost perfectly with her future interests but which also give her a degree of flexibility in adapting them. Cindy does not mind the fact that she is not usually monetarily compensated for her work over and beyond expenses at the most but she is aware that it is because of her background that she is enabled to do so. Of course, with all that relevant, unpaid, voluntary work experience that Cindy engages in and which also reduces the cost to her employer, Cindy is in a good position to obtain her desired (paid) work in future.


Now, in all three cases, it has worked out well for Ben, Jason and Cindy. Now, however, let us imagine the case of a different kind of person. This person works a bar job like Ben because he needs to support himself, however, they do not envision themselves working in the alcoholic beverage industry in future. This person is not as highly productive as Jason and, therefore, is only just able to coordinate their paid work and studies and, thus, finds it infeasible to take on relevant paid work in their fields of actual interest. This person would love to do the work that Cindy and Jason do but is not able to because of money, time and productivity constraints.


Imagine now, however, a situation where there is no minimum wage. In this situation, Jason and Ben would be paid less but Jason, being highly productive, would still be able to obtain relevant, desirable work experience and Ben would also be able to support himself, gain relevant experience for his micro-brewery career but he would not have as much savings because he would be paid marginally less. Now for the final student and Cindy – the final student would be free to offer their labour at a lower price to the Students’ Union and/or NGOs and, therefore, work to a point where they are able to breakeven in terms of maintenance whilst also obtaining relevant experience their fields of interest. Now, Cindy no longer holds a privileged position by virtue of circumstances that are out of both hers and this person’s control since this person now has a potent weapon to use in the labour market – the power to offer their wage at the price they see fit.


Indeed, this means that the employers would be able to employ multiple people at lower wages which would mean that people are not unfairly privileged or excluded. Additionally, if both Cindy and this person were to find employment together with the same employer (Cindy now being paid marginally more since she was previously unpaid and this person being paid marginally less than at their previous bar job), they would both be able to work together and bargain for higher wages or even bring new perspectives to the table when working for the NGOs, Students’ Unions or other such organisations they would choose to work for.


In this sense, the organisation itself would improve through the epistemic benefits of diversity, there would be less animosity from the poor towards the rich (both of whom are privileged and/or excluded based on circumstances out of their control), there would be greater social cohesion and everyone would still be able to attain their objectives in a largely happier society whilst some would have to make a sacrifice in terms of supernormal monetary surpluses for the greater good.


Concluding remarks


Hopefully, these arguments against the minimum wage may help to persuade those who consider themselves to be on the ‘left’ and who share those priorities and values that the minimum wage, though it purports to be just and pro-poor, is essentially nothing more than well-intentioned evil done in the name of good that works to harm more than help society.


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