Buying Votes With Someone Else’s Money

Karl Muth argues supporting the minimum wage was an easy - but wrong - decision in the US's mid-term elections.

During the midterm American election on Tuesday, five out of five states voted to raise the minimum wage. Even Republicans in tight races – okay, especially Republicans in tight races – deviated from the historical “party line” and favoured raising the minimum wage. President Obama recently raised the minimum wage for certain federal employees and select contractors. Why, then, would I say it’s the right time to criticise America's federal minimum wage?

Candidates advocated for raising the minimum wage for a very simple reason. Promising to raise the minimum wage during a campaign is, essentially, buying votes with someone else’s money. By promising to raise the minimum wage, you are creating a cost that is not borne by you. It’s brilliant. If there were a way to buy kittens with other people’s money, candidates would promise kittens for everyone, too. I mean, who doesn’t love kittens?

People voted to raise the minimum wage because no one has bothered to spend the time, money, or effort to educate the public about the minimum wage. People voted for a higher minimum wage not because it was well-advocated-for, but because it was scarcely advocated against. It would have been easy to make good arguments against raising the minimum wage, even without resorting to (contested) claims that raising the minimum wage will increase unemployment.

Further, groups that historically have favoured a higher minimum wage should now be in favour of repealing the minimum wage. At the top of this pile is organised labour, which is frantically flapping about, trying to keep its head above the drowning waters of obsolescence contemporary politics. In one of the most visible recent defeats for labour, Tennessee workers at a Volkswagen plant rejected the United Auto Workers, seeing little benefit in the union’s offers of representation.

One of the only ways for organized labour to stay relevant is to move downmarket – away from places like auto factories – toward lower-wage workers. The only way for the unions to be relevant in this context is for there to be a “downside” to not signing up with a union that is somehow worse than working for minimum wage. And the only way of creating a legitimate fear of something worse than minimum wage work is to lower or eliminate the minimum wage.

Just as opponents of the Affordable Care Act succeeded in rebranding it “Obamacare” (thereby associating an unpopular president with a poorly-understood programme) and just as reasonable people should rebrand “global warming” and “climate change” to something more palatable like “climate tuning” or “terraforming,” the opponents of the minimum wage should begin calling the minimum wage “systematic overpayment” or “wage tampering” or something similar.

Any way you slice it, no matter what your politics, almost every minimum wage worker is overpaid.

And I only say "almost" because there must be some workers in the economy whose marginal product of labour happens to perfectly match the marginal wage the minimum wage offers.

Let’s look at the minimum wage worker. If he or she weren’t being overpaid, he or she wouldn’t rely upon a price floor on labour (which is what a minimum wage is). Government interference in the wage market means private actors (employers) are forced to eat a cost equal to the difference between the efficient wage (a wage equal to the worker’s marginal product of labour) and the minimum wage. Even if a person mopping the floor or lifting chips out the fryer is only contributing $3 an hour of value to your business, you’re forced to pay them substantially more – essentially, it is a government welfare or benefits programme with costs borne by private industry.

At this point, many people realise that the minimum wage is a century-long failed experiment in government interventionism that started in New Zealand and won't end until investors finally say they will not continue to endure arbitrary labour costs created by bureaucrats, most of whom have never managed a business and are experts only at bureaucrat-ing. But no candidate promising a higher minimum wage, even successful businesspeople like Messrs. Rauner and Oberweis, seems to mind these costs being covered by private industry. After all, if you're a desperate candidate in a tight race, the only thing better than being able to buy votes cheaply is being able to buy votes using someone else’s money.