Cooper's Minimum Wage Folly

Recently, former Suffolk County legislator Jon Cooper wrote an article advocating an increase in the current federal minimum wage rate from the current rate of $7.25 per hour to $10.10 per hour over the next three years. The basic premise of his argument is that since consumer spending is what drives the economy all we need to do is to increase the wages paid to the workers at the bottom of the pay scale and the economy will improve.

Further, Mr. Cooper insists that once all businesses are forced by law to pay higher wages to these workers:

• there will be less turnover

But, why stop at $10.10/hr.? Why not go to $20 or $30 per hour? If prosperity can be achieved by forcing employers to alter their weekly payroll for the greater good, then wouldn't it make sense to exact more from their bottom line? After all, why are they in business if it is not to serve their fellow man?

While consumer spending may make up 70% of the GDP, it is economic productivity that creates the jobs that allow consumers to spend. Mr. Cooper's article does not mention how productivity gains can be achieved by increasing the minimum wage. Also, it has been well documented that raising the minimum wage leads to an increase in unemployment.

In addition, minimum wage employees do not make up the majority of that 70% spending. Consequently, any attempt to artificially boost the minimum wage to stimulate demand and 'prosperity' is nothing more than 'rent seeking' political opportunism – not sound economic theory.

Government decrees that force the wage rates above the supply and demand equilibrium will only decrease the investment and job creating capital business owners will have at their disposal. Eventually, if there are no corresponding productivity gains, business owners will seek to cut back the number of employees in order to 'make payroll.' For example, companies that have 10 or more full time employees and are already struggling to survive with high taxes and a slow economy may eventually be forced to pay out an additional $59,000 annually just to comply with the law!

It is not a popular position to argue against raising the minimum wage. In fact, politicians on both sides of the aisle have argued for increasing the minimum wage in order to get re-elected. However, government intervention and price fixing are issues that need to be addressed by consumers and businesses, not just politicians or 'do-gooders' looking to remain in office.

When governments violate the sanctity of private property and begin micro managing the affairs of individuals and businesses, we no longer have a free society.  As F.A. Hayek put it almost 70 years ago, “It is only because the control of the means of production is divided among many people acting independently that nobody has complete power over us, that we as individuals can decide what to do with ourselves.” 

In other words, we should not let governments set prices for anything. If we are free to work that out ourselves in the marketplace, the chances of success and prosperity are much greater.