The usual bunch of economically illiterate poverty pimps recently hit the headlines demanding an $18 - $20 per hour “living wage” based on what they claim people “ought” to be paid. They do not say how this is to be accomplished, but above-market wages can only be achieved by government intervention: either legislating a higher minimum wage, or by raising taxes on those who have earned their money, in order to transfer it to those who have not.
The leftist world view is based on what we could call the “snapshot fallacy.” This effectively freezes a snapshot of where people are in life right now, then deterministically assumes they will stay there forever. Since a number of longitudinal studies show that over time, most people acquire marketable skills and work habits which enable them to move up in the world, this is arrant nonsense.
Since it is not a core requirement for a social sciences degree, leftists are fundamentally ignorant of basic economics. They believe you can cut something out of the economy, tinker with it, plug it back in, and it will continue to operate in isolation without affecting anything around it.
The poverty pimps have suggested that an $18 - $20 per hour “living wage” is the difference between just getting by and progressing, between starving and eating. It’s a difference-maker, all right: between having a job and getting fired, which in most cases is exactly what will happen to those who need work most, once employers feel the prick of government-mandated spikes in labour costs.
Wages in any particular job are a function of supply and demand in that labour market. If a hospital administrator wants toilet cleaners, his qualified labour pool consists of any able-bodied adult willing to work. This means he can pay relatively low wages and still fulfil his labour requirements. Should he seek an electrical manager for the hospital’s electrical plant, the qualified labour pool (an electrical engineering degree and 20 years work experience) is far smaller. To attract suitable applicants, he will have to pay far higher wages than those of a toilet cleaner.
Here’s how markets work. If I offer to pay toilet cleaners $8 an hour, perhaps I’ll only attract flies. They might want $9 or $10 in order to sign on. At this point I get to decide whether or not to employ those workers at the higher wage rate.
It’s none of government’s business what I want to pay workers at my business. If I pay peanuts, I will get monkeys. if I pay too little, I won’t get anyone. If I have applicants for every position, I am offering wages people are willing to take.
The common thread here is individual decision-making, the engine that drives free markets. Workers accepting or not accepting a position. Employers choosing what jobs to offer and what to pay.
This is a perfect marketplace balance. The moment someone accepts a job, we learn the exact point at which employer and employee are satisfied with the transaction.
Government intrusion only screws this up. To stick with the previous example, forcing me to pay toilet cleaners twice the market wage comes with an opportunity cost. As Milton Freedman reminds us: “There’s no such thing as a free lunch.”
There are two ways for me to recoup this additional outlay.
To keep my wages bill at its former level, I could halve the number of workers I employ. The toilets then get cleaned half as much. Since hospitals need to be maintained to high standards of hygiene to prevent disease, this probably isn’t an option.
My other alternative would be to keep everyone on at the government-mandated hourly wage, then ask the Minister of Health for more money. The government can only get this by raising taxes or by increased borrowing. Tax hikes to fund unnecessary government expenditure or repay unnecessary government debt suck money out of the private sector that could better be spent by those who have earned it.
Where the poverty pimps hold up the example of the family living on the minimum wage, call them on it. The minimum wage was never intended as a platform for supporting a family. It is an entry-level springboard from which we are supposed to prove and improve ourselves, preferably before we bring children into the world.
Want a ten dollar raise? Educate yourself. Be prepared to start at the bottom and move up as people used to do.