11 Jun


Doug Smith: Author, historian and regular contributor to Free State Patriot

June 11, 2015

In 1938, in the midst of the Great Depression, a Progressive President and Congress acted to try and mandate the minimum wage a worker could be paid. Their target wage was 25c an hour.

They failed. As has every subsequent Congress which tried over the years. For the minimum wage is, and always has been, Zero.

If I hire you to cut my grass for $15, and you do a lousy job, your wage will move from 15 to zero, because I won’t hire you again.  I will make a cost benefit analysis. It is not worth $15 to me to have you cut my grass. So I seek another alternative. I might buy a goat.

And so it has been, in 1938, and every time Congress has tried. Some keep working, and get the new mandated wage. Many others get fired, and get the eternal minimum wage: zero. Many more do not get hired at all, and continue to get the universal minimum wage: zero. When Congress, or the city of Los Angeles, moves to artificially raise the minimum wage, they accomplish two things; neither of which are their original intent.

The first is to make some workers happy, and their employers unhappy, because they are getting more money for the same effort, without contributing more to the company’s bottom line. They also make other workers unhappy, because the mandated raise will not apply to those who started at the bottom, worked their way up to making more, only to see the guy who just started and doesn’t know which end is up get the raise he worked for at the stroke of a pen.

min wage

The second is to make potential workers unhappy. For with each increase in the minimum wage, the number of entry level workers is decreased. Now in plain English that means companies cut back on the number of employees. Care to flip a coin with the guy next to you? One of us gets a raise, one of us gets the boot. Good luck. There is a cost beyond just salary to keeping an employee. If I must pay each bottom rung employee more than they are worth to my bottom line, it becomes for cost effective to fire 2, and pay a little overtime to 3 others. More to the point, the teenager looking for part time work, the young person seeking that all important 1st job, looks less appealing. I will hire fewer people now than I would have. If an additional $100,000 in business might have been the break point to add one full time employee before the $15 minimum, now it may be $150,000. Sorry, kid, but Congress says you will have to wait.

So, in the midst of the Depression, with economic activity stalled and sputtering, how much longer did it take for a business to reach the point to hire one more man? The guy inside the gate was now getting a bit more, but the guy outside the gate was still broke, cold, hungry, and out of work. He would have been thrilled to get some work at 20c an hour, but

Congress and FDR say “No, we can’t have you work for that pittance! How can you support a family on 20c an hour? “

“But, but, I’m supporting them on zero cents an hour now. I’ve got nothing coming in. The 20 cents would be great.”

“Sorry, but we are from the government and we are here to help. Blame it on the evil, greedy capitalists inside the gate. “

Meanwhile, the EGC s inside the gate are going over the books. The 25% increase in labor costs, mandated by the government, has cut their margin from 2% to ½%. And an increase in the cost of goods sold has cut that even further. Shaking their heads, they reach for a stack of pink slips and start filling them out.

And that is what a boost in the government mandated minimum wage accomplishes. Not lifting people up, but pushing more people to the true minimum wage, dictated by natural law: Zero.

As if to underscore the point, the labor unions of Los Angeles are petitioning to be exempted from the city wide mandated $15 minimum wage because “it might make them uncompetitive in seeking contracts.”

The irony is rich. Welcome to basic economics, boys.

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