Most everyone who sees suffering wishes they could do something about it, but often times this sympathetic impulse leads people to jump to quick fix policies without thinking about the consequences.
Take for example, the minimum wage.
Many see minimum wage laws as a cure for poverty, but what they don’t see is the consequences of those pay hikes. The extra money that employers must now pay their workers has to come from somewhere, and it often comes from a combination of increased prices for consumers, layoffs, or slowed growth. That is, in a competitive market, there isn’t just extra money lying around. Competition forces businesses to constantly reduce costs, improve services, and innovate to suit consumers’ needs. Thus, in order to pay for minimum wage increases, businesses have to cut somewhere. So while minimum wage laws might raise the income of some, it will eliminate it entirely for others.
For these reasons, it’s not just big retailers like Wal-Mart that oppose minimum wage laws. Small business owners—like this one in San Francisco, who considers himself “progressive” and “very pro-government, pro-regulation”—have urged the city to reject legislation that would bring the minimum wage up to $15 by 2018.
In short, minimum wage laws put a strain on small businesses, and punish low-skilled workers. So on labor day, let’s remind ourselves that the right to earn a living at a government-mandated wage often comes at the cost of the right to earn a living at all.