To the Editor,

 

The Washington Daily News has correctly used the laws of supply and demand to argue that the states are better suited to set the minimum wage than is the federal government.  I would further suggest that since minimum wage laws do nothing to raise aggregate wages, satisfy consumer wants or provide jobs, they are counter productive and should be entirely abandoned.

Imagine two hypothetical manufacturers, each supplying one half of a 10,000,000-unit market for hammers where both firms have identical non-wage costs per hammer produced, but firm Alpha pays its employees only three quarters of the hourly rate that firm Beta pays to its employees.  Next, grant that every hammer created will be purchased by a satisfied customer at a price of $20 per hammer.  Obviously, the difference in wages paid to their respective employees dictates that Alpha is the more profitable business and that Beta is the less profitable business.

Question: If there is no change in the wages paid by either firm which business will survive in a free market economy?

Answer: Only Beta, the firm paying the highest wages, will survive.

In a free market, the solution to the problem of non-competitive wages at Alpha will be resolved by Beta’s desire to acquire a larger and larger share of the overall market in hammers.  To accomplish this Beta will expand its investment in plant and equipment and correspondingly hire additional employees away from Alpha by offering higher wages than Alpha is willing to pay.  This process will continue as long as consumers continue to believe that a new $20 hammer is worth more to them than a $20 bill.  Beta’s desire for market share will dominate Alpha’s desire for low wages.  Beta will thrive and Alpha will wither.

When an economy runs freely, the consumer runs the economy. Business owners merely organize the supply chain for the labor and materials that create the products consumers demand.   By their patronage, consumers indicate what price they are willing to pay for a product or service.  Once that price is known businessmen work backward to create an effective distribution of sales revenue, a distribution that will satisfy employee wage demands, payments to suppliers and returns to investors. Business owners cannot purchase the labor of their employees at below competitive prices anymore than they can purchase utilities, equipment or financing at below competitive prices.  Failure to adequately compensate any of these constituencies will result in that business being denied those factors of production.

The minimum wage does nothing to establish competitive wages that free market competition has not already accomplished.

Businesses create jobs only in an effort to satisfy their customers. These jobs broadened the set of employment choices and make the world a better place to live in.  But by legislating minimum wages politicians artificially raise overall prices above what consumers wish to pay for the products being offered.  This leads businesses to offer consumers less labor-intensive goods and more automated services while job seekers are provided with fewer employment opportunities.

 

Warren Smith

Beaufort County