Nancy Pelosi, the new speaker of the House, has told us that she will call up as maybe the very first order of business increasing the minimum wage. Here are the relevant facts:
The federal minimum wage, enacted in 1938, was last raised in 1997. From that point on, with certain exceptions, you could not lawfully hire someone to work without paying him or her at least $5.15 per hour. Paying that much would yield $206 per week, or $10,712 per year. A different federal agency defines poverty as annual earnings of $9,827 or less for a single person. The mathematics of the above informs us that the existing federal minimum wage barely keeps a single worker out of poverty.
Of course, many states and localities have enacted higher minimum wages than the federal one. In San Francisco, you need to pay a worker $8.50 an hour; in New York State, $6.75; in Wisconsin, $5.70.
We learn that 60 percent of minimum-wage earners — two-thirds of them women — are working in restaurants and bars; 73 percent, by the way, are white, and 70 percent have high-school diplomas. Nearly 60 percent work part time.
Now we can leech from these figures several observations:
(1) It can be very difficult to tell what a minimum wage worker is actually making. Many of those who work in restaurants and bars receive tips; then again, the minimum wage is substantially lower for people in that situation.
(2) A high-school diploma will not in and of itself give the worker merchandisable skills o’erleaping the minimum wage.
(3) Since there are part-time workers who receive only the minimum wage, a moment’s reflection makes it obvious that they receive, by whatever means, income that makes life possible.
Now on the matter of what to do about it, we should begin by acknowledging that any argument for circumventing the market wage is sophistry. The market will tell you, even in San Francisco, what you need to pay in order to hire an hour’s labor. But sophistry is sometimes in order. We do not allow child labor — except in certain circumstances: Peter Pan, at the neighborhood theater, is allowed to work even if he is only 12 years old.
Monopolies are not permitted to set prices. The idea is that in a free society, you must not tolerate any constriction in production. But again, sophistry is permitted, because labor unions, in many fields of endeavor, practice exactly that — a monopoly on the price of labor. What do we do about that? Exactly what we do about waiters who don’t list their tips: We ignore it.
We learn that one individual American last year received compensation of $1.5 billion. This leads us indignantly to our blackboard, where we learn that the average chief executive officer earns 1,100 times what a minimum-wage worker earns. What some Americans are being paid every year is describable only as: disgusting. But that disgust is irrelevant in informing us what the minimum wage ought to be. The one has no bearing on the other.
We are bent on violating free-market allocations. Doing this is not theologically sinful, but it is wise to know what it is that we are doing, and to know that the consequence of taking such liberties is to undermine the price mechanism by which free societies prosper.
Milton Friedman taught that “the substitution of contract arrangements for status arrangements was the first step toward the freeing of the serfs in the Middle Ages.” He cautioned against set prices. “The high rate of unemployment among teenagers, and especially black teenagers, is both a scandal and a serious source of social unrest. Yet it is largely a result of minimum-wage laws.” Those laws are “one of the most, if not the most, anti-black laws on the statute books.”
Professor Friedman is no longer here to testify, but his work is available — even in San Francisco.
Copyright 2006 Universal Press Syndicate