A $15 minimum wage is radical. In fact, any minimum wage is harmful to workers.
Excerpt from “Teaching Economics to Bernie Sanders”…
Price controls, including price controls on labor are harmful. If the cost of bread in a free market is $1 per loaf, assume a consumer may typically buy 5 loaves of bread a week. If a government intervenes in the market and decides that the cost of bread is too low, the government may set a minimum price for a loaf of bread (this could possibly be done by larger companies lobbying government to keep prices high or to limit competition). The government decides that the bread bakers deserve and extra $2 per loaf of bread, setting the minimum price at $3 per loaf. There becomes a decrease in demand for bread as the cost of bread rises. Instead of buying 5 loaves of bread a week, a consumer may only be able to afford 1 or 2 loaves. Due to the government intervention, consumers will buy less bread.
The same principle applies to labor. Wages are a price like anything else. A wage is a transaction between employee and employer. Increasing the price of labor immediately decreases the demand for labor, meaning not as many people will be hired. Manufacturers still need to produce, so they will have to automate to replace the jobs they can’t afford to hire a person for. If they don’t invest in automation, they risk jeopardizing even more employees as the manufacturer won’t be able to sustain or grow the business while taking losses due to the excessively high wages.
Minimum wage mandates decrease an employer’s demand for labor. An employer who typically pays employees $10 per hour may hire 5 employees at that rate, but only 3 employees if a $15 minimum wage is mandated. With the price of labor artificially increased by government intervention, an employer cannot afford to pay for the same amount of labor. If an employer pays the artificially high wages rather than adjusting to the change in prices, there must be a contraction in some area of the company while there’s an expansion in the company’s labor costs.
This contraction could mean less resources allocated to research and development or less investment in new capital goods. Capital goods refers to the means of production which allow workers to be more productive, thus able to earn a higher wage. If resources go into wages rather than investment in capital goods, workers will be less productive in the future than they would be if there was no artificial wage increase and resources were free to be invested in capital goods. So, if an employer is forced to pay artificially high wages and chooses not to adjust his or her demand for labor, the workers and employer will suffer in the long run as less resources are allocated to improving the production process.
If a minimum wage is set at $15 per hour, but a worker is only able to produce, say, $10 per hour, the worker won’t get that job. It’s easy to see who benefits from a mandated minimum wage, but the people who are harmed the most are the ones who have been literally priced out of the job market. Just like a $3 loaf of bread isn’t attractive to someone who can only afford a $1 loaf of bread, it isn’t in an employer’s interest to pay someone $15 per hour for $10 per hour of productivity. This would cause the company to eventually go out of business by practicing such a wage policy (unless they are successful in reducing the amount of labor required), depriving the world of that good or service being produced.
Value is not based on labor. One can spend hours laboring in the mud, trying to build some sort of dwelling space out of it. Yet, those hours of labor would most likely be useless to anyone because mud isn’t a good material to build with. Value is subjective. Value is determined by what a given individual is willing to give up in exchange for that good or service.
If one wants to sell a pen for $2, then at that moment, the person who owns the pen values $2 more than the pen. The person who wishes to buy the pen values the pen more than the $2 they have. The $2 and the pen are valued subjectively by both people involved in the transaction. This is what allows the transaction to happen. If the pen and the $2 had an “objective value”, then one would always be valued more than the other by everyone. In that case, all parties would want the thing that has a higher value.
From a subjective value perspective, it doesn’t make sense to assert that all labor must require a minimum of $15 per hour. We know that some labor will be valued less than $15 because value is subjective and based on productivity rather than labor or effort. Anyone who accepts the subjective value theory cannot honestly be a proponent of a minimum wage.
According to the Bureau of Labor Statistics, “Among those paid by the hour, 701,000 workers earned exactly the prevailing federal minimum wage of $7.25 per hour. About 1.5 million had wages below the federal minimum. Together, these 2.2 million workers with wages at or below the federal minimum made up 2.7 percent of all hourly paid workers. The percentage of hourly paid workers earning the prevailing federal minimum wage or less declined from 3.3 percent in 2015 to 2.7 percent in 2016. This remains well below the percentage of 13.4 recorded in 1979, when data were first collected on a regular basis.”
As the economy grew, more people could earn higher wages. Over time, less people were earning the minimum wage. This occurs by increasing productivity by investing in new capital goods, not by artificially increasing wages.
The population making minimum wage is a population with very few marketable skills. Luckily, they can produce $7.25 per hour or they would be unemployed. If an individual wish to provide for his or her self by being a member of the workforce, that individual must improve his or her skills as a worker to be more productive, thus able to be paid more for his or her work. One shouldn’t expect to be able to support a large family, mortgage payments, groceries, etc. from a minimum wage.
Bernie’s rhetoric might lead you to think that most people are working 40 to 50 hours per week and living in poverty. This is demonstrably false as I have shown. The people living in poverty are the ones who can’t produce at the minimum wage. These people are left unemployed. In a free market, these people would have opportunities to generate income and learn skills on the job. So, it’s the price control on labor, a minimum wage, rather than the “greedy capitalist” that hurts the unskilled worker.