Proponents of minimum wage increases argue that these policies help support low-income and low-skilled workers (research says otherwise). They claim the moral high ground against ‘greedy’ business owners while remaining blind to the fact minimum wage laws are immoral. Not only do these policies limit the freedom of employers, they also take away a worker’s right to own his or her labor.
All human beings must own their own labor – this is the fundamental difference between workers and slaves. Moreover, if you own your labor, then you should have the right to sell it at whatever price you choose.
For example, under current minimum wage laws, you can give your labor away for free. You might choose to volunteer, help a friend, or accept an unpaid internship that could lead to better job prospects in the future. However, if someone offers you $5/hour for the same work, now it’s illegal. The government has removed your autonomy and ownership of your labor by forcing you to accept either no compensation or the minimum amount it believes your work is worth.
Consider a job not covered by minimum wage laws: babysitting.
Suppose a couple is looking for a last-minute babysitter, and they have two possible options. One babysitter has other plans and decides that, in order for this job to be worth her time and labor, she needs to earn at least $50. This is more than the couple can afford to offer. On the other hand, a second babysitter is willing to sell his time and labor for only $30. Because there are no minimum wage laws limiting their freedom, the babysitters are able to sell their labor based on their perceived costs (including opportunity costs), and the parents are able to select the best option.
It is impossible for the government to know the costs and value related to any labor experience; therefore, it is best left to the judgement of the individual.
Despite good intentions, minimum wage hikes can increase low-skilled unemployment by lowering the demand for low-skill labor relative to the supply of low-skilled workers. The extent to which low-skilled workers gain or lose under changes to the minimum wage depends on the scope of the change.
Furthermore, the minimum wage has a disproportionately negative effect on African-Americans. While research suggests minimum wage laws hurt young workers of all races, studies have shown higher increases in minority youth unemployment relative to white youth unemployment.
Instead of relying on minimum wage laws, policymakers should consider more effective alternatives. Expanding the earned income tax credit is frequently cited as a superior means of helping the poor. EITC is based on household income instead of individual wages. This is important because many of the people most in need battle unemployment.
Another alternative is a wage subsidy. By subsidizing wages, policymakers can lower the cost of employing low-skilled workers. This encourages employers to hire more low-skilled workers, unlike the minimum wage, which creates an incentive to hire fewer workers and invest in automation.
In addition to wage subsidies and the EITC, a basic income guarantee presents a more comprehensive approach to poverty. The basic income guarantee is a flat payment made to all citizens. These payments would be funded by eliminating the current social safety net programs. Similar to the earned income tax credit, this approach addresses the needs of both the working and non-working poor.
Notably, all of these policy alternatives shift the burden of helping the poor away from a small group of business owners and onto society as a whole. This reduces the likelihood of job loss and preserves the autonomy of workers and employers.
Rejecting the minimum wage as an arbitrary and detrimental price floor is not the same as turning your back on the poor. The moral imperative is not to mandate higher wages, it is to give people the freedom to own their labor.