What Is the Minimum Wage?


What is the current minimum wage, in dollars per hour?

Did you guess $7.25 per hour?  The Fair Minimum Wage Act of 2007 raised the federally mandated minimum wage from $5.15 to $7.25 over the course of two years. 

But that’s the wrong answer.

The true minimum wage is zero dollars per hour.

It always has been, and it always will be.  No act of Congress will ever change that.  Congress only pretends it can raise the minimum wage, by declaring a new, higher level it judges to be “fair.”  The people left unemployed by the politically mandated minimum wage earn zero dollars per hour.  

Such a compulsive change in the price of a resource does not change its value.  Labor that was worth $5.15 (or less) in 2007 does not become more valuable in 2009 just because the government mandates that employers must now pay $7.25 per hour for it. 

Increasing price, while value remains constant, leads logically to a reduction in demand.  This is precisely what happened when the minimum wage increased.  In a blog post about Walter Williams’ new book, “Race and Economics: How Much Can Be Blamed on Discrimination?” the Heritage Foundation reports:

“Thanks to the minimum wage; the poor, teenagers and specifically young, African-American males have lost many opportunities to find work. The well-intentioned increase in minimum wage has done nothing to help those for which it was intended. More importantly, the skills learned in low-paying jobs are essential for movement up the career ladder and earning higher pay later. Without the opportunity to earn the low-ladder skills, they miss the boat on ever finding good-paying jobs.

“Even without another wage increase, the results of previous minimum wage hikes are glaringly negative. In March of this year, the teenage unemployment rate was 24.5%, with black teens claiming a whopping 42% unemployment rate.”

What would companies pay their employees, in the absence of a federally mandated minimum wage?  The popular imagination is filled with an army of corporate Scrooges, tossing a few lumps of coal to their shivering Bob Cratchits.  Wouldn’t they have to offer more than pennies per hour to attract some labor?  Wouldn’t the brutal one-dollar-per-hour sweatshops see their business model collapse, as competitors snatched up the workforce with better pay and benefits – a process repeated until competitive equilibrium was achieved, and wages roughly corresponded with the true value of labor?

One might point to the pitiful wages paid off the books to illegal aliens as evidence of the threadbare future awaiting us, in the absence of minimum wage laws… but artificially high minimum wages cause that market to exist.  The savings realized by paying undocumented workers under the table are great enough to encourage widespread lawbreaking. 

In a similar vein, few companies relish the idea of outsourcing vital operations to overseas facilities, which American management cannot easily supervise.  They’re painfully aware that American consumers don’t like dealing with foreign customer service and technical support representatives.  They do this because the cost advantages of shipping that labor overseas far outweigh the benefits of keeping those jobs in the United States.  You can criticize companies for being too eager to take advantage of these cost incentives, but you can’t deny they exist.

The minimum wage is predicated on the idea that private citizens cannot be trusted to determine the fair value of entry-level labor.  The political class insists we content ourselves with the illusion of a benevolent State looking out for the little guy.  The even littler guys earning the true $0.00 minimum wage don’t count, and we are instructed that even thinking about that wage level is immoral.  This prevents us from learning one of the great economic lessons of the past century, which is that value cannot be improved through political fiat.  Value is shaped by demand, not desire.