Why We Should Abolish the Minimum Wage

Minimum wage laws were first enacted as a form of institutionalized racism, and have been perpetuated in order to protect unions from competition. But you thought the purpose of the minimum wage was to help the poor…in fact, minimum wage laws hurt the poor more than anyone else.

Many decades ago, people wouldn’t pay a black man as much as a white man for the same work. So some racists had the bright idea to create minimum wage laws that would be high enough that nobody would be willing to pay black people that high a rate. Even if the intent is not overtly racist today, the minimum wage still does damage to blacks, latinos, and other racial minorities. It also exacerbates the sad circumstances of the poor. Imagine this scenario:

Joe is a black youth in an crime-ridden, inner-city ‘hood. He just turned 16. He’s poor. He lives with his mother and four younger siblings in a one-room, run-down apartment. He wants to help out with the family situation, but he doesn’t have any skills. He figures the only part-time job he can get is working at McDonalds. But McDonalds is forced to pay a minimum wage of $7.25. For that amount, McDonalds can afford to hire Maria, a 30-year old with five years of experience working in fast food. Why would McDonalds hire Joe if they can hire Maria for the same price? Joe, depressed and desperate, is approached by the local gang, that promises him money and riches if he becomes a low-level drug dealer. In theory, he’ll make a bunch of money. In practice, he’ll make about $7/hr. Joe doesn’t want to do it, but he figures perhaps even if he dies or gets mixed up in stuff that drags him down, at least he can help his mom and younger siblings.

If there were no minimum wage, maybe McDonalds would hire Joe at $3/hr. Joe could make $7/hr as a drug dealer, but then there is that risk of being killed. Joe would prefer to make $3/hr vs. making nothing or being killed, and he figures perhaps he can learn fast and start getting paid more, which is probably how things would work out. Perhaps Joe is a fast learner and within six months he’d be such a good employee that he’d be worth more than the current minimum wage. But because of the minimum wage he never gets the chance.

But what about Maria? If Joe gets the job, then she’s out of a job, right? Maybe, maybe not. If McDonalds can hire people for $3/hr, then that lowers their cost of operating a restaurant quite a bit. Maybe opening a McDonalds in Joe’s neighborhood was too great a risk before, but with the lower cost of unemployment, the rewards outweight the risks, so McDonalds start expanding, and consequently they need more employees, so both Maria and Joe end up with jobs.

Where do the unions come in? Union workers don’t get paid the minimum wage anyway, so why would the unions care? Because unions are all about keeping wages high for their members. If a union construction job pays $20/hr, but somebody else is willing to do the same work for $5/hr, then that’s a big problem for the union. The union could send out thugs to beat up anybody who works for $5/hr, or anybody who pays $5/hr, but it’s easier to get the government involved and have the government tell people it’s illegal for them to pay less than a certain minimum wage. This makes non-union employees less of a competitive threat to union employees. But consumers have to pay more as a result for their homes, cars, and all sorts of other things. In fact, it filters through the economy and makes everything more expensive. And guess who suffers the most as a result? The poor, since more expensive products hurt them more than they hurt the rich or middle-class.

If we want to decrease poverty and give minorities a hand, one of the best things we could do would be to abolish the minimum wage, and allow employers and employees to work out their own arrangements, free of government or union interference.