Increasing the Minimum Wage by 175% is a Bad Idea

Ben Burgis recently argued in Arc Digital that a 175% federal minimum wage increase was a good idea. He is incorrect. It is a very bad idea and his own argumentation is highly unpersuasive. But if he is right then he’s created a bigger problem here for many standard leftist policies. Because if the minimum wage is a good idea then the simple economics of sin taxes shouldn’t work, which would make things like the Carbon tax completely superfluous.

I’m not an economist or a specialist in this field so I’m not going to take issue with the data he presented, except in one simple yet very important way, but I will present a simple libertarian “common sense” critique of his position. The reason that the standard economic textbooks have taught that a minimum wage is a bad idea is because of supply and demand economic philosophy. Contrary to what most non economists think Marx’s labor theory of value was determined to be quite literally still born which is why Marxism tends to be inordinately popular with non economists. The way that prices actually are determined has almost nothing to do with the labor of manufacture but rather from demand. If no one wants a boulder pushed up a hill then it doesn’t matter how much labor you exert to get it there, you have created no value and hence no demand.

This theory was then naturally applied to wages. Capitalists (the people with businesses and the money) are in the market for laborers and skilled workers of various kinds. They have a particular demand and the labor/worker classes have the supply. But just as with shoes, steaks, and sports teams not all potential employees are created equal. A veteran computer programmer with degrees from MIT is in much more demand and valued far more highly than an entry level gopher with a GED. Companies want to pay the first guy a lot of money and the second guy as little money as possible.

This means that by artificially or arbitrarily raising the minimum wage the market becomes disfavoring towards those with no skills, no degrees, and no experience. This is what the old economic consensus, that the minimum wage was essentially a bad thing, was built on: simple supply and demand economics. If you want to have an easy economic in for the lower less advantaged classes raising the minimum wage is a bad idea. To be clear this is all argumentation sans data. In other words contrary to what Burgis claimed in his piece we do have an a priori argument that tells us what should take place if we artificially raise the minimum wage. The results should be similar to any increase in the price of a thing previously in demand, its demand will decrease causing a surplus in supply which in this case would mean increased unemployment.

This is exactly the same logic behind sin taxes like cigarettes and the carbon tax. Personally I don’t think the sin taxes have been nearly as successful in reducing the amount of sinners as we’re led to believe. Cultural semi dogmatic pressure coming from the MSM (mainstream media) played (and continues to play) a huge role in reducing smoking tobacco while encouraging marijuana usage. That aside sin taxes certainly make something deemed harmful less attractive. If Tobacco were not so heavily taxed I certainly would buy cigars more often and it’s hard to deny that I’m better off in several ways because of this. But if, as Burgis claims the data show, minimum wage increases have only positive societal effects and do not decrease employment then the carbon tax should also do nothing to save the environment because the underlying philosophy is either false or confused in some fundamental way.

This may be an uncomfortable philosophical outcome for those who think sin taxes will save us and our environment but it doesn’t defeat Burgis’ argument. What does defeat his argument is his own data. If Burgis was advocating that the Federal income tax be increased by fifty cents or a dollar then his data would be relevant to the argument he is making. All of his data concerns moderate minimum wage laws and an increase of a dollar is only a 14% increase. An employer would only have to pay their new minimum wage employee 8 more dollars a day, assuming a 40 hour work week. Which isn’t insignificant for either party. Going from $7.25 to $8.25 basically means that if you work 8 hour shifts you just got an extra hour of pay for free and if you’re the employer of this person the exact reverse has happened. Assuming the worker works normal full time hours this translates to $160 more each month. But while it is a significant increase 14% seems relatively manageable. It might not be, especially for small startups like restaurants, but for large businesses like Wal-Mart 14% should be easily managed.

Unfortunately Burgis isn’t advocating for an increase like this. He’s not even advocating for the 107% increase of $15. In his Jacobin fervor he’s come to believe that raising the minimum wage by 175% is a good idea. For the full time minimum wage worker this would translate to a daily increase of $102. Every month the employer would be required to pay an additional $2,040 for the same amount of work which amounts to another $24,480 for a full year. Not only does none of his data support a ridiculous increase like this but this only heightens the intuitive force of the original supply and demand argument. How could an increase like this not impact the employability of unskilled workers? If it didn’t impact their employability then why not raise the minimum wage to anything we want? Why not raise it to $50? Why not more than that? Why not make the minimum wage identical to the minimum average salary of CEOs? The reason of course is that the market cannot bear such an increase. So maybe the reason Burgis’ data doesn’t show an unemployment problem is that minimum wage increases have generally stayed within limits that the market could bear. The original US federal minimum wage was $0.25 and it was outpaced by inflation within a very short amount of time. Even today minimum wage workers only make up a tiny fraction of the population. The vast majority of Americans earn more than the minimum wage because companies want their wages to be attractive as well as manageable.

Currently Netflix’s cheapest plan costs $9 a month. If they were to increase their service charge by 175% it would now cost $25 a month. Almost everyone reading this knows that if this were to happen they would spend some serious energy trying to decide whether or not they should cancel Netflix. Every year you’re now going to shell out $300 instead of $108 for the same service? That really isn’t all that radical a change for most budgets yet it would still become at least a minor issue for many of us. Netflix knows if they do this they will lose subscribers that’s why when they raise their prices it’s almost never by very much. If supply and demand economics are false then this should not be true but we engage in this type of reasoning all the time. Gas prices in California are so high that I have to seriously think about whether or not I actually need to use my car every day.

Burgis wants the lowest most unskilled workers in America to earn $38,400 yearly instead of $13,920 for a full time minimum wage employee. He wants to force companies to pay an additional $24,480 per year per full time minimum wage employee and he does not believe this will have any negative impact on employment based on data that is simply not relevant to his argument. The scariest thing about this line of reasoning is not that unskilled workers might earn almost $40,000 yearly its that they might earn zero instead. This is not a binary question. It’s not either the government can force companies to pay unskilled workers $40,000 or $14,000 yearly it could also be that the government forces many companies to pay unskilled laborers $0 because they can’t afford the new minimum wage law.