Catch 22 and the minimum wage law

Catch 22 and the minimum wage law - []

To point out the flaws in making a minimum wage compulsory risks being seen as in favour of grinding the faces of the poor or advocating starvation, but however virtuous it may seem, enforcing wage levels is subject to the Law of Unintended Consequences.


On the face of it an enforceable minimum wage will prevent exploitation. In theory it will ensure that anyone with a job will be able to live on it and not starve.

No one likes the idea of one human being exploiting another. Nobody wants to see people starving. So, what on earth can be wrong with a law making employers pay at least the minimum seemed enough to prevent these horrors?

Well, if unemployment is the worst crisis the country faces – and there is excellent evidence that it is right up there with crime and corruption – then enforcing a minimum wage is not going to help. It may well hinder the creation of jobs, particularly for young people who leave school without the ability or the means for further education

An enforced minimum wage will not create opportunities for people entering the job market for the first time. Indeed, it will likely prevent creation of jobs by entrepreneurs wishing to start a new business venture.

For example, a business plan that began with the intention of employing three people on bicycles delivering bread door-to-door to suburban housewives will be re-written. It will call for only two people on small motorcycles providing the service. The minimum wage thus shuts off the creation of one job. Multiply the analogy across the piece and the loss of jobs could be in the thousands. Investors will look elsewhere – China and India prove that to be true.

With a minimum wage law, the same logic will now apply to expansions of existing enterprises. It will slow or stop some of them entirely.

Add the experience of almost everyone starting off to earn a living and looking for someone to give them a job. It is a safe bet that everyone has received the same response at least once: “Sorry, we need someone with experience”.

But getting experience needs having a job to gain it. Will a legally-enforceable minimum wage make such a chance better or worse for the first time job seeker straight out of school?

Yes, of course education is a key. Get a qualification first and then apply for appropriate jobs are good advice. But it is no guarantee that you will get one.

 Nor will the existence of the minimum wage law prevent exploitation. There will always be people on the fringes willing to work for low pay, and always people prepared to pay below the minimum.

It comes down to this: a minimum wage law does not solve the problem of joblessness – particularly among young adults. It does not open doors; it shuts those that would otherwise be opened.

Education comes from various sources. Not all of them are schools, colleges and universities. Many swear by the most ancient method of all called on-the-job training —apprenticeships.

Originally, this system allowed an experienced craftsman or tradesman to take a youngster into his home, to feed him and clothe him, and introduce him the correct use of tools and develop skills by watching how it was done. After some years (four or more) the apprentice became free to set out on his own and to repeat the process.

Yes, some apprentices were treated badly but most were not and the system, despite other drawbacks, worked well. The public (customers) were also protected in that plumbers, blacksmiths and later electricians, and other metal workers plying their trade came with a guarantee that they had served their time at the feet of a master. They knew their business.

What was important about this system is that no experience was necessary to become an apprentice.

Of course, there are those who will benefit from the minimum wage – those who are already in work and paid less.

The trades unions will benefit most. Those who manage, despite the hurdles, to get a permanent job will pay union dues. The shortage of skilled workers will remain, and high pay for skilled people will be maintained. Government too will gain from the additional taxes, both direct and indirect.

The losers are those who do not have jobs for the minimum wage reduces and closes off chances to learn. The real minimum wage will become zero.

What has been lost is an opportunity few politicians recognise — working in a low-wage job might be worthwhile for someone who has no better opportunities. A low-wage job is a step to a higher-wage job. Any paying job teaches valuable lessons like time-keeping, personal presentation, and other good habits essential in the working world. Turning down a job flipping burgers is a classic case of shooting oneself in the foot.

Imposing a minimum wage does not solve the problems of the unemployed. It may look good and gain votes, but it is a short term measure and since it contributes to inflation, it does not even benefit those in work for very long.

Yes, the minimum wage results in higher wages and lower job competition for some, but it eliminates employment opportunity for those who most need it.