This year we celebrated the 15 year anniversary of the minimum wage. I think it’s safe to say it’s been a rip-roaring success. In just 15 years, we have seen the elimination of low pay in Britain. And all because the government outlawed it. Yeah, turns out it’s that simple. If the government doesn’t like something it can just pass a law commanding it to stop, and it stops. Makes you wonder why they didn’t just pass the law sooner, really. I mean that’s how we ended up getting rid of murder, rape, assault, robbery and fraud, isn’t it? Oh, hang on…
The 15 year anniversary is traditionally referred to as the “Crystal Anniversary”. Which, in this case, seems about right, I suppose. Because just as there are plenty of folk who believe in the magical powers of crystals, there are plenty of folk who believe in the magical powers of minimum wage laws. But contrary to the mystics, you can’t just legislate something out of existence. No politician would try to legislate gravity out of existence. No politician would try to legislate sunsets out of existence. That story about King Canute commanding the sea to stop – that was meant to demonstrate the powerlessness of even the most powerful men in the face of laws of nature. No politician messes with generally recognised laws of nature these days.
The problem – and it is a grave one – is that very few people recognise economics as being concerned with laws of nature. That is, laws of human action. Most people believe it’s simply a matter of the State passing a law here, a law there; regulating this more heavily, that more lightly; finding just the right balance. When we reach that balance, we’ll be set. We just have to keep searching.
This is nonsense. What the State should be doing to help the economy, is nothing. Those things that it is currently doing, it should stop doing immediately. No good can come of State intervention in the economy, none whatsoever. If this sounds melodramatic to you, just imagine what would happen if the State determined upon acting as if gravity didn’t exist (perhaps in the name of improving journey times between London and Birmingham, or something equally preposterous). Do you think that would turn out well? How much wealth would have to be destroyed before the farce was abandoned? No one would attempt to act as if gravity didn’t exist, of course – it’s immediately obvious that it would be stupid to try. However, it’s equally stupid to pass legislation that attempts to act as if economic law doesn’t exist, and yet…
So why is a minimum wage law so wrong? Why shouldn’t it be attempted at all? Why don’t we need to wait “until the data is in”?
Well, what is a wage? It’s a price for labour. The only reason to pay for labour is that it adds value to a product or service. Paying more for the labour than it would add in value leads to the employer making a loss. Therefore, an employer will not hire someone at a wage which is too high. (Those employers that persist in hiring workers at too high a wage will tend towards bankruptcy and cease to be employers.) Therefore a State enforced minimum wage must increase unemployment. It is, in Murray Rothbard’s phrase, “compulsory unemployment”.
Perhaps the word ‘wage’ is the troublesome part. Perhaps it’s down to not recognising that a ‘wage’ is merely a ‘price’. No one, after all, continues to buy a thing after its price exceeds the value gained from buying it. Going to the chippie once a fortnight is out of the question now they’ve put the ‘price’ up. That’s reasonable. But the owner didn’t have to sack the Saturday girl just because the State forced her ‘wage’ up, did he?
But have politicians got the King Canute story backwards, though? Do they really think they can safely ignore economic laws? Maybe not. Maybe they have a much better understanding of economics than they are letting on. After all, why is the minimum wage the amount it is? Why isn’t it much, much higher? If we can force employers to pay more than they currently do without any risk, why isn’t the minimum wage, say, £10 an hour? Or £20? Or £200, £2000, £20,000 an hour? Perhaps politicians understand full well that you can’t just command wealth into existence. Perhaps that’s why the minimum wage is so low – so that its effects are only felt by people at the margins, people who don’t count, who can be safely ignored: the uneducated; the unskilled; ethnic minorities; the handicapped. Something to ponder, at least.
The minimum wage could be said to be more about “social” issues, than “economic” ones. What about in a Libertarian society, without a minimum wage, without employment laws of any kind, even ones outlawing discrimination? What would be the fate of, say, racial minorities? Don’t we need the State to make the world a more harmonious place? No. No, we don’t.
For example, an employer only hires whites. He has all white staff, all doing unskilled work of the type that would presently be paid at the legal minimum. A job opens up. A non-white man applies. He is turned down, as you’d expect. What can this fellow do? Must he search elsewhere for employment? But it is not illegal for him to offer to work for less than what the employer currently pays his workers. That is, he has not been legally stripped of his power to compete for the job. In the absence of the State, he could offer to work for a lower wage, say £20 a week less, thereby undercutting his competition. But he would be doing much more than this: he would be making clear to the employer that there is a cost involved in maintaining a racist hiring policy. It now costs the employer £20 a week, £80 a month, and over £900 a year to be racist. Which is to say, the minimum wage is a subsidy to bigots.
Ah, but what if the employer is so racist that he doesn’t care about paying too much for labour? Well, we can’t guarantee he will care. But, whether he does or doesn’t, every one of his competitors that is willing to hire non-whites has an advantage over him. Either he will see reason, or he will cease trading. There is no need for the State to intervene. The self-interest of the employer, the self-interest of the employee, and the forces of competition will suffice.
Essentially though, the question to ask is this: What gives an employer the right to set wage rates? The answer is that the employer is the owner of his business. So what does a State enforced minimum wage imply? That the State is part owner of each and every business in the land. Not only that, but the State – having the monopoly on legislation, as it does – is effectively in the position of universal majority share holder. If you own a business, the State always gets the deciding vote. In fact, ‘business owners’ are nothing of the sort. They’re merely people who currently run franchises for the State. This hidden, comprehensive nationalisation – this is the principle which underlies the minimum wage law. It is the principle which underlies each and every piece of legislation or law that deals with employment. For that reason they should all be abolished immediately.