Minimum Wage

Supply-and-demand says that above-market prices create unsaleable surpluses, but that has not stopped most of Europe from regulating labor markets into decades of depression-level unemployment.” -Bryan Caplan

Arkansas Issue 5, called the Minimum Wage Increase Initiative, will be up for consideration on the ballot this November. This would increase the State-mandated minimum wage from $8.50 an hour to $11.00 an hour in 2021, incremented by about a dollar each year until that point.1

The group who is behind the measure, Arkansans for a Fair Wage, have stated, “The cost of groceries, housing and other basics have gone up for years. But wages haven’t come close to keeping up. By gradually raising Arkansas’ minimum wage to $11 an hour, we can help hard-working people meet their basic needs. At the same time, we’ll help small businesses by putting more money into people’s pockets that they can spend on goods and services in our state.”2

They couldn’t be more wrong. Let’s take each claim one at a time.

Has the price of “other basics” gone up for years? Yes, but not as dramatically as one may think. For the past 40 years, the price of necessities, such as clothing, food, shelter, energy, etc., has risen at just above 2% per year.3 Furthermore, individuals spend far less of a percentage of their income on necessities: about half as much of all that is earned is spent on basics as today compared to 50 years ago. People are spending less of their money to just get by, and the increase in the price of those necessities has been minimal.4

Have wages come close to keeping up? Now that we know the truth about cost increases and disposable income, it is easy to say that wage growth has been extraordinary. In the past 50 years, we have seen an average wage growth of around 6%, nearly 3 times the growth of cost of basics.5 In addition, more individuals are working. The workforce in those same years expanded by 8%, all while experiencing a slight decrease in unemployment overall during that time.6 More people are working, and more of those people are making much larger incomes.7

Will this increase to $11 help hardworking Arkansans? Demonstrably, no. It will increase unemployment and drive inflation. States with no minimum wage laws routinely have the lowest unemployment, such as Switzerland, Hong Kong, Singapore, etc. These governments are usually held up as economic exemplars for other reasons as well, their unemployment is generally under 3%. The United States before FDR was able to hit 1.8% unemployment, under the great “deregulator” Calvin Coolidge.8

When minimum wage laws were enacted in the West, unemployment shot through the roof. Artificial wage increases mandated by the government, that are not in line with real economic growth, causing employers to fire workers, as they cannot pay for the increased wage. From the 1980s to today, States around the world saw unemployment jump to double digits with minimum wage laws in place. How is someone supposed to make a living wage if they are not even working?9

Now who is hurt most by these laws? Almost half of all minimum-wage earners live with their parents, and most are in school in some way. Those who need the most training, work experience, and can find that by taking up a low paying job and working their way up, are the most hurt by these minimum wage increases. Unemployment for those under 25 has only increased historically, this is a direct result of minimum wage increases brought on by government coercion.10

Furthermore, the increasing inflation would continue to deter economic opportunity for those needing it most. If a supplier is forced to pay his youngest, greenest, and least valuable worker more, must he not pass on this cost in the form of price increases? This has been historically true following all artificial wage increases. This does not help small businesses, as it does not put more money into the pockets of those who could spend it. It will only increase unemployment, raise inflation rates and prices, and decrease the buying power of the dollar.11

The arguments for government-mandated minimum wages are not rooted in fact or economic rationality. They would do more harm than good, and only hurt those they proport to help. At Conduit for Commerce, we wish to educate individuals on economic reality and hope this policy short will educate people on the potential impacts of passing Issue 5 and raising the minimum wage.