Many people believe that the minimum wage is a major source of America’s prosperity. Actually as of 2009 only 4.9 percent of (employed) workers earn minimum wage or less. Prior to the Great Recession the average was between 2007 and 2000 was 2 to 3 percent.
This is another case of what is seen (workers who get minimum wage) and what is unseen (workers who don’t get to work because minimum wage). If the minimum wage was truly the path to prosperity, by that logic then, why don’t we raise the minimum wage to $100 dollars per hour? Actually that sounds pretty good — but wait a second — as economists have been saying for about 200 years now, “there’s no such thing as a free lunch.”
So let’s say that the law goes into place and is perfectly enforced (i.e., nobody works for $99/hour or less). Some businesses shut down, but all businesses cut down on employment because it is too costly to hire the same amount of labor as before the minimum wage increase.
We find that unions around the nation support minimum wage increases. It’s definitely not because union member workers earn minimum wage (because then they’d fire their union because the union dues would make their wages fall below minimum wage). It might be because they unions care about non-union workers, but wait is there a better reason? Let’s take an even more compelling look at the minimum wage.
Anyone can tell you that there is more than one way to do things. To get to New York, one can take a plane, a bus, a train, a car, walk, bicycle there, etc. Likewise in production, there’s more than one way to produce a good. Let’s say fence manufacturing: I can hire one skilled worker for $25 or I can hire three unskilled workers at $8.25 per hour ($24.75 total)—both create the same level and quality of fences. At those skilled/unskilled wages I’d prefer to hire unskilled workers and save 25 cents.
The skilled worker gets Congress to agree that people ought to be paid a fair wage, so they pass a higher minimum wage at $9 hour. All of a sudden I must pay the unskilled workers $9 (or $27 for all three). At a total of $27 for three unskilled workers all of a sudden the skilled worker becomes a better option at $25! In fact the skilled worker looks better all the way up to $27.00! How about the three unskilled workers? Now they’re unemployed. There’s no job out there that they have the skills to command a wage of $9.
While unions may or may not be naïve in thinking that they harm their fellow laborers by supporting minimum wage, they sure have one strong personal incentive to support it.