One of the great free-market economists of my lifetime, the late Milton Friedman, once said: "One of the great mistakes is to judge policies and programs by their intentions rather than their results."
That, of course, is true in lots of areas of policy, but if what's happening in Seattle is any indication, increases in minimum wage is an area where that is especially true, and policymakers should think twice about meddling in the free market.
This op-ed, written by a server in a restaurant in Seattle, says of Seattle's new minimum wage: "The legal minimum is going to $16.39 an hour, while my pay drops to zero."
Minimum wage increases are well-intentioned most of the time, I think. The goal is to raise the standard of living of those who are working in minimum wage jobs by requiring employers to pay them more. The problem, as Simone Barron (the author of the op-ed), points out, is:
...being an established chef and a good employer doesn’t save you from the burden of a sharp minimum-wage increase, up 73% from $9.47 in 2015. For large-scale employers like Mr. Douglas, there’s no separate rate for workers who earn tips. In Washington and a handful of other states, tips aren’t counted as income earned on the job. That means restaurateurs are expected to pay servers like me the full minimum wage in addition to our considerable tip income.
When rent is too high, labor costs too much, and customers don’t want to pay $40 for a roast-chicken entree, the only way for many operators to ease the pain is to close.
Ms. Barron--self-described as "proudly progressive in my politics"-- points out what those of us who believe in free markets understand: businesses don't always have the money to pay employees that extra amount with the same hours--and sometimes their margins are so narrow that they just close down.
Too often, those well-intentioned folks promoting minimum wage increases forget other parts of the market: they forget the employer who is trying to still make a profit while paying that wage, and they forget the consumer who doesn't want to see the price of their product go up precipitously.
The free market works. In places where there is a labor shortage, businesses pay more than the minimum wage in order to get employees (several businesses in my small town start people at $1-$2 above Nebraska's $9/hour minimum wage). In places where there is an abundance of labor, more people might get some work if there were no minimum wage, rather than few people getting minimum wage jobs. Simple supply and demand.
“The hallmark of a truly free market is that all associations and relationships are based on voluntary agreement and mutual consent. Another way of saying this is that in the free market society, people are morally and legally viewed as sovereign individuals possessing rights to their life, liberty, and honestly acquired property, who may not be coerced into any transaction that they do not consider being to their personal betterment and advantage.”
Ebeling says that the rules of a free market are simple and easy to understand: “You don’t kill, you don’t steal, and you don’t cheat through fraud or misrepresentation. You can only improve your own position by improving the circumstances of others. Your talents, abilities, and efforts must all be focused on one thing: what will others take in trade from you for the revenues you want to earn as the source of your own income and profits?”
I think Milton Friedman had it right. Results, not intentions. If you're interested in reading more of Milton Friedman--or watching videos that were done while he was alive--just Google "Milton Friedman Free Markets" or "Milton Friedman Minimum Wage" (or just about any other topic related to economics), and there will be an abundance of hits for you to explore.