Last Friday a group known as “Fast Food Forward” (tightly affiliated with the SEIU union) led a series of demonstrations in over 100 US cities at fast food restaurants where they called for a near doubling of the federal minimum wage to $15/hour. In further news there were a number of similar demonstrations in which short people demanded to be declared as tall, the overweight demanded to be declared as thin, and the un-athletic to be declared as athletic. Oh, wait, that last bit didn’t actually happen. Sure would have seemed silly if such events had taken place wouldn’t it? Well, if you can see why a “raise the federal minimum height” rally would be silly you’re on the first step to understanding why calls to increase the minimum wage are equally absurd.
A wage is nothing more than a point system used by each of us and applied to all of us that allows us to rate how valuable we find each other’s labor. This value assessment is however tempered by the immutable law of marginal utility: the more there is of something, the less we value any one unit. Water is the most valuable material on the planet (as our day to day survival depends on it) but it sells at a mere 0.7¢ a gallon (from the tap) because of its abundance. Likewise, in any given profession, the more people capable of doing a job, the lower the wage for that job. The wage is lower, you see, not because the buyer (employer) is deciding what it shall be, rather it is the result of the numerous sellers (employees) bidding prices down in order to make the sale. If your wage is lower than you’d like, don’t blame your employer, blame your peers and yourself. You can blame your peers for being willing to work for less than you. You can blame yourself for not improving your skills or productivity so that you can distinguish yourself from your less productive brethren and thereby demand a higher price for your services. To blame your employer for paying you minimum wage when you would prefer to have double that wage is as silly as the shop owner blaming his customers for not buying his wares and opting instead to purchase from his competitor who charges half as much.
If workers latch onto sympathetic politicians (interested in buying votes) who pass laws that raises their wage then the employer is still free to explore all options that might get the job done for a lower price. Minimum wage law does not require employers to buy the product (labor), only that if they do buy the product they must pay at least the floor price. Thus enters the specter of automation: a machine that is economically unviable when competing with low wage rates will suddenly make more economic sense at much higher mandated wage rates. Those looking for a minimum wage increase are going to price themselves right out of the market. The truth of this statement is already evident today in the growing trend of automated self-checkout systems becoming commonplace. In a few years we may find the concept of a human cashier as alien as a full service gas station (and if you don’t know what “full service” at a gas station means, then all I can say is: point made.)
Whenever there is a call to raise the wages of this or that class of worker (whether it be fast food workers, teachers, or police or what have you) there is a major insight that is always lacking by those making the call. They believe that if they get what they desire they will be the ones to enjoy the higher wages. But they are mistaken. It is the more highly skilled and more productive worker that will replace them. The less productive or skilled worker can’t compete with the highly skilled worker if the mandated wage is set at the productivity level of the more skilled worker. Would you buy a Kia or a Mercedes if the minimum car price were mandated to be $70,000? Bonus question: what do you think would then happen to the Kia car company?