The Moral Argument Against the Minimum Wage

Guest post by: Ben R. Crenshaw

The minimum wage has been in the news recently, as there are a number of movements to raise the minimum wage from its national rate of $7.25 an hour. The largest battleground has been in Seattle, where a $15 minimum wage is scheduled to be phased in over the next two to seven years. This has prompted a vigorous national debate about the utility and wisdom of having national or state-mandated minimum wage laws. While there are multifarious aspects of the minimum wage, I want to focus on one issue that is rarely considered: the moral case against the minimum wage.

The minimum wage is immoral. To understand why, we must first explore its social and economic dimensions. Socially, the minimum wage is a type of social contract. Two parties, the employee and the employer, are involved in negotiating a contract over labor and compensation. The negotiation is voluntary in that the employer is not being forced to hire any specific person and the employee is not being forced to work for any particular company, and consensual in that both employer and employee mutually agree to the terms and conditions of the labor contract. Within the philosophy of social contract theory, one’s moral obligations are relative to the contract that is agreed upon. In this case, once the contract has been signed, the employee is morally bound to fulfill their work responsibilities, and the employer is morally bound to compensate them for their labor (through wages, medical benefits, vacation time, paid time off, sick leave, etc.). If either side fails in their duties, the contract can be broken; the employer has the right to fire the worker or the employee can look for work elsewhere.

Economically, wages are determined by the labor market. It’s important to realize that value in economics is subjective, being determined by supply and demand, which is dictated by what people value most. The old labor theory of value, followed by Karl Marx and David Ricardo, made the error of pinning value objectively to the amount of labor inputted to a specific task. Wages cannot be determined by any objective, universal standard of labor compensation but rise and fall with subjective valuations. These subjective valuations are driven by both endogenous and exogenous factors. Productivity, or the value an employee adds to the company, is a major endogenous component. Productivity is determined by internal and external factors: internally, education, skill, work ethic, and behavior can positively or negatively impact productivity; externally, business management and organization, technology, and employee care can impact productivity. The greater the productivity, the higher the wage. However, exogenous factors also determine wages, namely, supply and demand. If there is a large demand for engineers, but few people qualified to do that work, companies will compete for that labor by offering higher wages. Conversely, if there is a surplus of manual laborers competing for a limited number of jobs, wages will drop as companies are able to hire at the lowest wage accepted. In short, wages are subjectively determined by various internal and external factors that fluctuate over time as markets expand and contract. Finally, employers are not prohibited from paying more than the market-determined wage out of their own abundance and generosity, but no dictate of justice or fairness requires them to do so and the government should never force them to.*

Proponents of the minimum wage make two mistakes. Economically, they falsely reason that wages should be determined by what is minimally needed to support a person or family (known as a “just wage”). While this minimum amount may rise with inflation, it suffers from the fact that no one really knows what a minimum standard of living is, and that it is an objective theory of labor value that completely ignores subjective value. Socially, the minimum wage represents a breach in the social contract as one party (employee) enlists the help of a bully with a big stick (the government) to force the other party (employer) to accept their terms (higher wages). This means that employers are being compelled against their will to abide by a labor contract they don’t agree with. This is immoral conduct by employees, unions, and the government that harms businesses. The only time this would be acceptable is if the employee could demonstrate that wages are unjust or their employer is abusing them. However, since wages are not determined by an external standard of living, until employees show the injustices in productivity and supply and demand, their case fails. Appeals to a standard of living are superfluous and irrelevant.

The minimum wage is immoral because it involves one party enlisting the government to force the other party into accepting a contract that is not mutually voluntary or agreeable. Since proponents of the minimum wage misunderstand the economics of wages, they falsely appeal to a standard of living to make their case for justifying their coercive acts. The result is violence against employers and severe distortions in labor markets that lead to higher unemployment and businesses closing.

* For further reading about the economics of labor and wages, see Thomas Sowell, Basic Economics: A Common Sense Guide to the Economy 4th ed. (New York: Basic Books, 2011), 207-291.

12 thoughts on “The Moral Argument Against the Minimum Wage

  1. Thank you Ben. I am an employer, and I am pressed by this requirement, as you say. I see no reason why I should have to pay a high school kid a living wage, when he doesn’t need a living wage, to sweep the floor. It keeps me from hiring young people, because at that payroll rate, I have to have more from this person than unskilled labor. I need to bill out the production of a skilled worker, and then I have to pay THEM to sweep the floor. Does this make any business sense at all? You don’t have to have an MBA to know. When grocery stores have to pay high school kids a living wage, it will affect the price of a gallon of milk. It will be young families then that pay for this higher wage- the very persons they are trying to help. Economic suicide. Totally agreed. . . if someone wants to be paid more, then they should provide more value to the company. That is what I have to do as well! If I want to make more sales as a business owner, I must make myself more valuable to my customer. It isn’t even close to rocket science. Let the markets take care of themselves. No one has to work for someone who pays you too little, or doesn’t appreciate the work that you do. Up the ante. .. . raise your value, and apply for a new job. Easy? No. It isn’t easy anywhere. Not even if you own the company.

  2. To say the minimum wage is a ‘social contract’ would be true if people could live without having to work for that living. But since we have created a society where one must work to pay the debt on their existence, the contract becomes a social obligation. If one could sustain themselves by only living off the land and not working, then contract might apply.

    The supply and demand comparison for jobs and wages fails also, for as we see all the time in America despite the incredible growth of GDP and wealth of this nation in the last 30 years–wages will still decline. Internal and external influences are irrelevant when a company can file some paperwork, change their tax status, and lump that burden onto the worker and their family. The novel idea of one working hard and being rewarded with a share of the profits also fails when a company moves their production overseas to have their product made by slaves. No amount of hard work can compete with slave labor.

    Now yes, some jobs should pay more than others given their skill and education. That still does not address the changing narrative in America where occupations we need —nurses, teachers, welders, mechanics, –can no longer afford to support a family. That is where the argument stems from. The minimum wage is the barometer for all other occupations. It is the floor that is falling out, and next is the middle class. I am sure you are aware they are disappearing at a rapid rate.

    I would suggest you check the minutes from the Fed or the FOMC to know what ‘a minimum standard of living is’. They routinely look at all kinds of data to determine the state of the economy and the price of goods compared to wages. We know what it costs to live, a lot of social programs use these figures to set up fund disbursement. To say making a standard of living comparison is ‘superfluous and irrelevant’ is quite the naïve statement. These people do not disappear despite worldview objections and most often wind up costing far more money in healthcare, emergency services and social programs than had they been paid a survivable wage rather than a starvation one.

    While I am a libertarian and do not want the government telling any company what to do, if the government or unions did not step in at times we would not have child labors laws, the 40 hour work week, family leave, or workplace safety regulations. The real moral argument is to the amount of greed we as a species will allow.

    • I don’t have time to get into everything thing here, but there’s some pretty wild claims you’ve made that I’d like to counter real quick.

      You argue that “[t]he supply and demand comparison for jobs and wages fails also, for as we see all the time in America despite the incredible growth of GDP and wealth of this nation in the last 30 years–wages will still decline.” This is an interesting statement as you’re missing the critical fact that wages are a price themselves. As a price on labor they are susceptible to what all prices are-supply and demand. Whilst the demand for labor over the last thirty years has remained constant, the supply has grown much more quickly (largely due to greater numbers of women entering the workforce than in decades past) ultimately driving the price of labor (wages) down. There’s more elements to wage prices than this, but many people overlook simple factors like this all the time.

      Secondly you claim that “[n]o amount of hard work can compete with slave labor.” Can you please provide evidence that we are competing with slave labor overseas? Can you argue reasonably that slave labor is more efficient than trained workers with incentives? The majority of outsourcing happens due to taxation here in the US that is too aggressive driving businesses large and small overseas, even for advanced jobs like coding. It’s cheaper to get a coder in Ukraine, a country wracked by civil war, to code for you than someone in California. Ridiculous.

      Thirdly you argue that “[in] America…occupations we need —nurses, teachers, welders, mechanics, –can no longer afford to support a family.” Hold up a sec here mate. After a quick google search and some mathematics, I found that the averaged median income of those four jobs in the US is 47,898.50 or just over twice what the poverty level for a family of four is. Are you telling me we need to double the poverty level? Heck not even the bottom 10% in any of those jobs was at or bellow the poverty level.

      Finally you jump on the trite bandwagon “the middle class…are disappearing at a rapid rate.” The curious question you fail to ask here is where are they disappearing to? In reality the middle class has shrunk primarily because a fair amount of people who used to populate it, particularly a lot of baby boomers, are moving up and out of it.

      • Yossef—here we go.

        1. As workers provide more wealth and more product their wages should increase. Hence the standard republican line of ‘a rising tide lifts all boats’. The data clearly points out that it does not. Regardless of how many people are in the workforce, if that workforce is expanding GDP by record margins for 30 years we should see an increase in their wages. We have not. There is no disagrees if the minimum wage was simply adjusted for inflation it would already be at $15.—Woman entered the work force in the 80s largely do to the falling dollar once it was unpegged from gold in 1971. It was also when the middle class began working more hours and taking on more debt.

        2.Here is one article among thousands among thousands of companies–please do a little research or try reading the paper every day.

        Hersey did not move out of Hersey, PA because Mexico has such skilled workers. It was greed, plain and simple. And the line about taxation being the reason companies leave—again try reading a little bit.

        3. Yes, nurses and mechanics make those wages and if you read a little further I stated that since these wages cannot support a family, and the minimum wage was the barometer for all other professions, it should be raised. Nothing to rebut here.

        4. Yes–the middle class is disappearing, and if they we getting richer then would we see a more even dispersion of wealth wouldn’t we. We would see less people in poverty by the very nature/idea that people are moving up. But we do not. And I do not need to ask where they are disappearing–it is quite obvious–they are living in their parent’s basement.

        Yossef–how does the game of monopoly end? When one person has all the money.

      • Yossef–I have replied to you and Heather, but I do not see the reply posted here. I suppose the moderator did not like what I had to say.

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  5. It looks like you ended up making a case for leaving the minimum wage alone. The government is attempting to solve a problem they have been busy creating – they have taxed business owners and other revenue-producing entities to the point where they stop doing business and producing revenue in their own country. So, there are fewer jobs for the workers in the country they left behind. Then, to make things better for workers, the government forces the remaining companies to pay their employees more. It’s irresponsible (at the very least) to expect that these remaining companies and small businesses will be able to shoulder the brunt of this minimum-wage hike for any meaningful length of time. The bigger and more profitable ones will probably last longer, but they will likely begin evaluating the possibilities of laying off more workers, asking for government bailouts, moving their businesses somewhere outside of the country, etc. in order to stay operating. This may be over simplifying, but the point is that it is not sustainable.

    It’s incredibly short-sighted, too – given that no one (least of all the government) can define for you a “standard of living” that you would either desire or deem appropriate. I understand there are numerous calculations, charts, and graphs, but if I’m comfortable eating beans and rice to survive while my neighbor (who hates beans, by the way) will only eat crab legs and quinoa, then these dictated standards become irrelevant. I believe that was the author’s point. He didn’t say that “making a standard of living comparison” was superfluous and irrelevant – he said that “appeals to a standard of living” are. The disparity between my choice of survival and my neighbor’s choice might seem small, but when scaled to categorize an entire nation, the subjectivity becomes plainly obvious and difficult to measure. This falls right in line with your statement about greed. That, it seems, is the crux of the issue and we’d simply be giving into this collective greed – the individual’s greed by giving him more money, the business owner’s greed by freeing him of his responsibility to take care of his workers on an individual basis, and the government’s greed by giving it more power.

    • Heather,

      See my comment about taxes above. It is a farce that companies leave based soley on tax reasons alone.

      And your willing to eat beans is irrelevant. We do not need a country eating beans to survive, they will all wind up in a hospital with malnutrition which we will have to pick up the tab for. Yes–some people will splurge and others will save, but an agreed upon average of survival in a country/market is routinely used to assess wages, taxes, prices and fees.

      We can pay people below what is costs to survive if you like. Though I really think you should reconsider the larger fall out on society as a whole.

  6. Pingback: The Historical Argument Against the Minimum Wage | Douglas Groothuis, Ph.D.

  7. I am not sure I am so convinced that since we cannot define a standard of living, then we cannot consider a minimum wage. It seems to me that we should be able to come to some reasonable kind of number based on the region in which a worker lives. Even if we cannot do so, I’m struggling to see why this undercuts the argument. Could not the workers, as you said, produce a reasonable case that their employers would underpay them if they can even without an exact number for a standard of living? Further, we know there is such a thing as a standard of living, even if we have difficulty deciding exactly what it is. We might postulate some kind of reasonable leeway between two numbers for example.

    All of the above is just a request for clarification. What am I missing here?

    “The minimum wage is immoral because it involves one party enlisting the government to force the other party into accepting a contract that is not mutually voluntary or agreeable.”

    What I’m really interested in is your statement about the limits of the govt. What I’m having a hard time seeing is how it would be immoral, strictly speaking, for the govt. to force a party pay a certain amount. It seems to me that this has to do with what exactly you think the govt. is for. If it is for merely protecting people’s rights then we would come to that conclusion. But if we also think of the government as providing for the common good, then it seems to me that the govt. could force parties to do certain things if they deem it in the country’s best interest. It seems to me that unless we can somehow show that the govt. is only for defense and protection of negative human rights, we will have trouble coming to your conclusion about the immorality of a minimum wage.

    I would like to hear more about the reasons why the minimum wage might not lead to the common good, myself. If we can help establish that, it would seem to result in the same exact conclusion that you have reached without necessarily having to hold to a minimalist view of the govt.

  8. Pingback: Minimum Wage vs. Moral Wage - The Write Wing

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