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Home | Blog | Good Economics Is "Bizarre" for Minimum Wage Supporters

Good Economics Is "Bizarre" for Minimum Wage Supporters

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Tags Free MarketsAustrian Economics Overview

The BBC is running a story titled “Bizarre excuses for failing to pay the minimum wage”. The article follows an investigation by HM Revenues and Customs in the UK, which is organizing a government awareness campaign for underpaid workers. Some of the excuses are indeed hilarious and evidently made up on the go, such as “My accountant and I speak a different language—he doesn’t understand me and that’s why he doesn’t pay my workers the correct wages.

But the majority are correct economic arguments for why a wage floor, imposed by law, goes against the natural workings of the market. For example, as one employer puts it bluntly: “She doesn’t deserve the national minimum wage because she only makes the teas and sweeps the floors.” Another explained that a staff member was underpaid who “wasn’t a good worker,” and another claimed that employees had to “prove their worth”.  Indeed, what these ‘excuses’ point at is that the marginal productivity of those hired workers is lower than the salary the employer would be forced by law to pay them. This, combined with the fact that their opportunity cost and bargaining power are low—given their limited or non-existent alternative employments—means that those workers are earning the most that they are able to given present conditions.

These employers are not heartless. On the contrary: they hired those workers on a voluntary basis, and more importantly, risked a fine by paying them a lower amount than the minimum wage. The alternative option was not to pay them the wage the government dictates, but not to hire them at all. For workers, then—and we can be sure they were aware of this—, the only other option was unemployment, the leading effect of any rise in minimum wage requirements.

The market is harsh, that is true. Its unyielding law of consumer sovereignty does not compensate entrepreneurs—or workers, by extension—for past merit or vested interests. At the same time, for workers, having a low-paying job is better than having none at all. It is a dignified way of earning one’s living, and more importantly, it gives one the opportunity to become ‘a good worker’ and to ‘prove their worth’. This is much more than can be said for living on government welfare.

Moreover, give the market breathing space and it will lift the same people it allegedly underpays out of poverty. Over the past few centuries, only capital accumulation and the division of labor have allowed people to move up to better employments and higher wealth levels. In this sense, we could even go as far as to call the market the ‘best operating charitable organization’. As the division of labor intensifies and extends, it embraces more and more of the (world’s) population, while strengthening social ties between individuals of varying physical or intellectual abilities.  

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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