July 24th, 2009

“Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience.”  —  C.S. Lewis

From time to time, we all have to suffer through hearing the local and national talking heads mewling about “living wages” and other such rot, and about how the great Senator “where’s my pants” and Senator “I didn’t know my boyfriend was operating a brothel out of my apartment” lecture us endlessly on “fairness” or “health care crisis” or whatever the new catchphrase is.

Firstly, if I own a business, then it is axiomatic to say that it is nobody else’s business; ergo, nobody else can dictate to me how my business operates, or what my expenses are, or anything else. It is, first and foremost, an issue of privacy, of freedom of association. If someone agrees to work for me for a wage that I agree to pay them, then that act, engaged in by two free, moral agents, is all that matters (or all that should matter, anyway). Why is it, then, that an omnipotent moral busybody from say, Austin, Los Angeles, Seattle, New York, or Boston, should get to decide, FOR ME (and for any free agent) what remuneration for services rendered should cost?

Let’s examine a hypothetical sole proprietorship with no employees. Imagine that I am a plumber, and that the price I charge for a particular job ends up being an hourly rate of maybe $3.50 (I bid $700 and it took me 20 hours to complete).  Should I report my customer to the Department of Labor for not paying me at least minimum wage? I’d be laughed out of the Department of Labor if I brought such a spurious case to them. But is it not equally spurious if an employee can make such a claim against his employer? Wasn’t the person with whom I contracted for that plumbing job my employer?

I know, I know, the congresscritters have written all sorts of laws to differentiate between “real employers” and “real employees” as opposed to the sort of relationship that exists between my customer (my employer) and myself. But if I have an employee, am I not buying services from him (or her), after the same fashion that my customer bought services from me? The only way to differentiate between these two relationships is to complicate definitions. Maybe there’s some sort of sense of inferiority with the congresscritters, considering that most of them haven’t ever done any real work, and they feel the need to justify their exorbitant salaries (about 18 times higher than the current federal minimum wage, but I stand to be corrected) by concocting absurd definitions. I’ll leave that to the psychologists to wrangle out.

My second reason for opposing minimum wage laws is because these laws are simply another form of political patronage.  Imagine a time when textile employees in one region of the country are making about four times as much as textile employees in another region of the country. If you were a purchaser of textiles, you’d probably buy from the low-end guy. Why not? It’s the same product at a much-reduced price. This, in fact, is the source of the very first minimum wage laws enacted in this country. The time was the late 19th century, and textile businesses in New England were getting crushed by textile businesses in the South. Well, wouldn’t you know that those great humanitarian, kind-hearted congresscritters from the Northeast just couldn’t stand seeing those poor, Southern employees being taken advantage of by their employers, so they enacted legislation that required the Southern employers to pay their employees what employees were getting paid in New England. Think it benevolence if you wish, but those congresscritters were ensuring that the textile industries in their respective states stayed in their respective states. Never mind that it wasn’t their place to do so. Never mind that this legislation hurt consumers nationwide by artificially increasing the price of textile goods. Those fine, progressive men from the Northeast were going to make things better for the Southerners.

Suppose you own a business manufacturing the ubiquitous widget, and further suppose that with the current market and your current capitalization, you can afford to have five employees, each at minimum wage (we’ll assume $5 to make the math easier to follow). Well, five full time employees comes to a payroll expense of $1000 a week. Now imagine that Monday, when you show up at YOUR business, the gummint has declared that you are to now pay your employees the princely sum of $6 per hour. The market hasn’t changed, and neither has your capitalization.

You are now left with about four options. First, you could actually pay all of your employees that golden $6 an hour, but if you do, your weekly payroll budget has just gone up by 24% to $1240, and simply raise the price of your widgets or, option 2 would be to take a pay-cut yourself. If it were MY business, there’s no way in hell I’m going to cut my annual pay by $12,480. If the market hasn’t changed, raising the price of my widgets won’t fly either. My customers will go some place else (like Mexico) to buy what I’m making. And even if my customers still insist on buying American, if the cost of doing business goes up for every business with lots of minimum wage employees, then that $6 per hour isn’t going to buy them (the minimum wage employees) any more than the $5 per hour did. But if the minimum wage goes up, what happens to the poor slobs who were just ahead of minimum wage? Do employers raise their pay rates to keep them ahead of the game? If they do, it magnifies the problem created by increasing the pay scale at the low end. Now, labor is more expensive across the board, which will drive up prices on everything, leaving the minimum wagers in the same plight they were in before the increase in their pay rate.

Option 3:  I can cut hours on my employees to about 167 per week. That would keep my payroll expense at about $1000/week, but my output is going to fall off by probably 15 or 20%, which hurts my business.

Option 4:  Fire one of my employees.  My other four employees will just have to increase their output by 20%.

The biggest “benefactors” of minimum wage increases are the unions.  Most of them have contracts that are indexed to minimum wage.  If the minimum wage is $5, and their index is three, then they make a minimum of $15 an hour.

So, who really benefits from minimum wage increases?  Firstly, liberal congresscritters in states with lots of union employees.  Secondly, employers in states with a high cost of living at the expense of employers in states with a low cost of living.  In practical terms, this means the West Coast, the upper Midwest, and New England against “flyover” country.

All of this begs the question “Why even bother with minimum wages?” if this is the way it works out (which it does). Exactly. Minimum wages, in no uncertain terms, do not help out those making it. In fact, it hurts them (and everybody else) by masking real inflation. The answer to my question is “political patronage.”

(This an edited version of an article previously posted at Capitol Hill Coffee House.)

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One Response to “Busybodies”

  1. doris |

    Well, what is the solution? My solution when I had my business was to pay my employee a salary, no matter how slow or fast he was, he got the same pay. No raises, unless he earned them. Of course, it wasn’t Mary Kay. Don’t even like makeup. Not my style, mud and horse hair. This seems to be a viable solution to the hourly pay problem for small business, what say you? It seems to be a vicious cycle, pay raises, product increases, a real mess. Business owners and employees should decide the correct pay, and if you feel underpaid, look elsewhere. Also, I am probably the only person you know who is satisfied with the money she/he has, for now.

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