Sunday, March 16, 2014

A Challenge to Minimum Wage Advocates

The only positive thing about minimum wage logic is that it is easily defeated. Common sense economics rejects it, but non-economic arguments cause it problems, too.

Here is a non-economic challenge to minimum wage proponents I have yet to hear convincingly answered (perhaps a commenter or my counterpart Tim can provide an explanation): If someone—say, John—wants to work for six dollars an hour at Company X, and Company X wants to hire John for that wage, why should that be illegal?

One might object that John may be exploited or somehow taken advantage of by Company X. However, this ignores that both parties enter freely into that arrangement, and that either party can leave the arrangement (the terms of agreement notwithstanding) at any time.

If Company X paid too paltry for his labor, John could take his skills elsewhere. Alternately, if Company Y thought John were worth more than Company X was willing to pay him, Company Y could snatch him up.

The same goes for Company X. If John started slacking on the job, or abusing company time, or stealing, for instance, Company X may fire John and hire someone else. Likewise, if Dan could provide more value to Company X than John, Dan may be hired and/or promoted over John.

The beauty of the free market is that the seller of labor (John) and the buyer of labor (Company X) must agree on a price that satisfies both parties. If either party does not hold up their side of the bargain, the contract may be terminated. As Milton Friedman taught, “the most important single central fact about a free market is that no exchange takes place unless both parties benefit.”

Free competition has benefited both parties in countless other markets. Why do we not allow it in the market for labor?


  1. The issue with this is that unlivable wages are subsidized by the government. Company X pays John 60% of his income and the Government pays John the other 40%. The tax payer picks up the burden which ALLOWS John to take the job. Now, if John weren't able to get the additional 40% from the Governement, would he really accept the offer? I am not saying this means we should raise min. wage, however your example is without question not a true representation of a free market due to gov't assistance.