Maximum Wage without Minimum Wage

People are continuously asking for an increase in the federal minimum wage to $9, $12.50 or $15/hr. from its current $7.25. Regardless of what you think the minimum wage should be, should we really be taking the one size fits all approach to wages?  In 2012 President Obama called for a $9 an hour minimum wage. I'm going to disagree with this proposal because I am not a fan of the number 9. The number 9 has always been a weak number to me since I heard about 7 eating 9, after all, that’s why 6 was afraid of 7. My point is how is an arbitrary number the most efficient for every one of the 30,000,000,000 businesses in the United States? If President Obama really cared about wages why not raise the wage to $12.50/hr. like Washington DC recently proposed or $15/hr. like the Socialist Party's current platform? In the end, $9 was the number drawn from the hat so that’s what was proposed.

Some would argue that working for minimum wage does not afford you the means to survive. I would agree and would argue that it is because of minimum wage laws that wages are so low. Why not find a way where no minimum wage is necessary and workers can get paid MORE than what the current minimum wage is today! The truth is that minimum wage laws lower the wages of the people it intends to raise them for. Anytime a wage is set above the market equilibrium a surplus results. Even though surplus sounds like a very positive word, a surplus of labor is also referred to as unemployment! If minimum wage laws did not exist, each market would set a wage where the number of people looking for jobs would equal the number of jobs available so everyone who wanted a job would have one. This sounds a little too good to be true for most people so it helps to look at an example of a country where no minimum wage laws exist. In Singapore there are no minimum wage laws so of course everyone is getting paid one penny an hour and the standard of living is crap right?. Wrong! In Singapore, with the absence of minimum wage laws, everyone who wants a job has one. Singapore currently has an unemployment rate of 2.1% which has caused the demand for labor to skyrocket! When a company goes out to look for a new worker to build their company they have a much more difficult time finding that person with such a low unemployment rate. Therefore, a company must offer higher wages or better benefits than their competition in order to attract and retain workers. On the other hand, if a country has a high unemployment rate employers know that there are many people looking for jobs so they can get away with paying them a lower wage since there are so many workers currently making $0 due to being unemployed. I would imagine that if you would ask most hard working unemployed Americans if they would rather be unemployed or have a job that pays less than minimum wage they would choose the low paying job. It least with a low paying job it gives them an opportunity to prove themselves and also would provide valuable work experience needed to obtain a higher level of employment. The elimination of minimum wage laws would allow for these unemployed workers to be given that opportunity.

"Anytime a wage is set above the market equilibrium a surplus results. Even though surplus sounds like a very positive word, a surplus of labor is also referred to as unemployment!"

Examples of the harmful effects generated by minimum wage laws unfortunately can be found everywhere. One recent example of the harmful effects of minimum wage laws can be found at the New York Hilton Hotel. The Hilton in New York has recently eliminated room service. On May 31, 2013, the Hilton on Sixth Avenue announced that they would be eliminating 55 jobs. John Fix, senior vice president of PKF Consulting recently said, "I don't think anyone makes a profit on room service because of its labor costs," he then added, "I'm sure all the big hotels will be looking at what the Hilton is doing." The problem is not that workers are not getting paid enough. The problem is that one group of legislators think they know what wage is best for every industry out there. According to the U.S. Bureau of Labor Statistics the teenage unemployment rate is currently 23.7%! I bet if you ask these teenagers without cars and without money for movie tickets if they would work for less than minimum wage the majority of them would say yes because their current unemployment status is not getting them anywhere and is certainly not getting them any respect. Once again, the legislators are setting an arbitrary wage above the market equilibrium resulting in greater unemployment.

On the other hand, minimum wage advocates will attempt to point out that a high minimum wage will not hurt a country's growth. The example is typically that Australia has a $16.88/hr. minimum wage while the U.S. sits at $7.25/hr. which would put Australia's minimum wage at 2.3x the amount of the United States. However, what this argument fails to take into account is the cost of living difference. For example, a pack of cigarettes in the U.S. is around $6 while in Australia it is $16.57 which is 2.8x the amount of the price in the United States. Furthermore, a pair of jeans on average will set you back $40 in the U.S. while in Australia they hover around $92.05 a pair which would make them 2.3x more expensive in Australia. In the end Australia still has an unemployment of 6% which means 6% of the population still can't find a job. Do we really want to settle for a 6% unemployment rate when it could be at 1% or better!

So what is the optimum minimum wage? The answer is $0 because it differs by industry, market, geography, etc. It's almost laughable that some egotistical individual can think that one wage is best for everyone. A $9 minimum wage in Iowa might sound a heck of a lot better then a $9 minimum wage in DC. A $10 minimum wage in the U.S. may sound great but if implemented in Australia people would barely survive. An easy way to sum this up is, "to each their own." Let each citizen decide how much they believe they are worth. Freedom is the answer.

The common misconception is that if minimum wage laws were eliminated then workers would get paid much less. However, in the case of Singapore, the supply of labor is equal to the demand for labor and workers of course have the option to work for the wages they are offered by a business. If the wage offered is too low for them they have the freedom to look elsewhere or get paid nothing and be unemployed. On the other hand, if a country has a high unemployment rate then employers know that there are many people out of work and looking for jobs so they can afford to pay them a lower wage since there are so many workers currently making $0 due to being unemployed. Said differently, the demand for labor has fallen to a point where the business has the upper hand and can dictate the wage they are willing to pay with no negotiation.

In the end, an increase in wages can only come from an increase in the demand for labor and/or a decrease in the supply of labor. In countries like Singapore with unemployment rates hovering around 1% the average household income (per capita GDP) sits at $61,400! In contract, America's unemployment rate sits around 7.6% with an average household income of $50,700. To create this demand for labor there needs to be economic freedom. Freedom for employers to decide what a fair market wage will be and freedom for workers to decide how much their time is worth. It is impossible for one politician to predict what wage is most efficient for every industry because it will never be the same. The answer is simple, if a business is offering a wage that is too low then no one will work for them but when the business's demand for labor becomes necessary for an increase in their profits the business must & will raise their offered wage, believe it or not, without the government telling them they have to!