During the State of the Union address President Obama suggested that having a minium wage was a moral issue. In the speech he said:
Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong. That’s why, since the last time this Congress raised the minimum wage, nineteen states have chosen to bump theirs even higher.
The President believes that it is a moral wrong for any full-time worker, regardless of what the job is, how much the job is worth, etc., should be able establish a home for a family of four. To solve this problem the President announced:
Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour. This single step would raise the incomes of millions of working families. . . . For businesses across the country, it would mean customers with more money in their pockets. In fact, working folks shouldn’t have to wait year after year for the minimum wage to go up while CEO pay has never been higher. So here’s an idea that Governor Romney and I actually agreed on last year: let’s tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on.
I probably sound like a broken record, beating the same drum, but if you were a minority or teenager raising the minimum wage to $9 per hour is not what you wanted to hear. Here’s why as I stated back in 2006:
Such an increase actually hurts teens and low-skilled minorities in the long run because minimum wage jobs are usually entry-level positions filled by employees with limited work experience and few job skills. When the government forces employers to pay their workers more than a job’s productivity demands, employers, in order to stay in business, generally respond by hiring fewer hours of low-skill labor. Low-skill workers become too expensive to employ, creating a new army of permanent part-timers.
Forced government wage increases are supported when people forget that the money used to cover the increase does not magically materialize. It must come from somewhere. Since Americans love the best products for the lowest prices, businesses will not likely pass the cost of the wage increase on to consumers in the form of higher prices. They will, instead, reduce their costs by laying off workers with the lowest skills, relocating the jobs (or the entire business) to another country, or skirting the law altogether by paying employees “under the table” or by hiring illegal immigrants.
Americans need to ask themselves a serious question: how does raising the minimum wage encourage business owners to take risks on unskilled labor? In fact, the minimum wage was never seen as a basis for socio-economic mobility. That is, government set wages were intended to be a temporary safety net, not a way of life. If the President wants to make the minimum wage a moral issue by saying that it’s “wrong” for the minimum wage not to sustain a family of four why, then, is it not also “wrong” to put business owners in a position where they will need to lay-off employees, reduce hours, and not take risks to hire unskilled workers, and so on, in order to fund the arbitrary wage increase? It seems that before we raise the minimum wage all Americans, including the Obama administration, would do well to read F.A. Harper’s book “Why Wages Rise.
Harper would recommend that President Obama raise wages by letting prices do what they do. That is, we should primarily care about the “prohibitions on the rights of each person to work at a job of his choice—either for himself or for an employer who wants his labor—at a wage mutually satisfactory between them” (119). Finally, suggests Harper, the President should worry only about prohibitions on the spending of a person’s income for what he or she wants most, among things offered by others who have produced them from their own labors. In other words, the way to raise wages is to increase economic freedom.