Friday, January 9, 2015

No, the minimum wage is NOT good for businesses

The Post-Dispatch had an op-ed the other day arguing that the minimum wage is actually good for business. The author of the op-ed, Chris Sommers, is a successful businessman in St. Louis who I debated with on this issue a few months back. You can listen to the debate here.

The crux of his argument then and now is that he raised the wages in his businesses, which worked out for him, so the Federal government should force every business in the United States to do the same. There were two good letters published today that tore apart this logic (here and here).
It's pretty tiring having to keep arguing against such a demonstrably horrible policy, but I submitted this letter to the editor anyway:
In his op-ed arguing for an increase in the Federal minimum wage (Boost business by raising the minimum wage), Chris Sommers thinks that he has hit upon a magic formula by which increases in the minimum wage do not decrease employment but, instead, are actually good for businesses. He dismisses the reams of empirical evidence to the contrary with the story that his own restaurant chains benefited when they unilaterally raised their internal minimum wage. 
In a nutshell, his argument has four parts:
  1. Because his businesses benefited from voluntarily increasing the wages it paid, every one of the millions of businesses in the United States would benefit by increasing their wages. 
  2. The owners and managers of these millions of businesses spread across millions of square miles are too ignorant to know how to run their own businesses. 
  3. Because of (1) and (2), the Federal government should step in and force a uniform minimum wage for every business of any size in every industry no matter where it is located. 
  4. The result is higher wages with no effect on the number of people employed.  
You can accept this fanciful logic if you like, but I would like to offer an alternative, which is backed up by actual empirical evidence.
  1. Wages tend to be related to the productivity of workers. 
  2. If a law forces a business to pay a wage that is not justified by the productivity of some of the firm’s workers, the firm will not continue to employ those workers. 
  3. The minimum wage leads to job loss and poverty for the lowest-skilled workers, who might never gain the experience they need to get a job that pays above the minimum wage.