Good Economics Is “Bizarre” for Minimum Wage Supporters

The BBC is running a story titled ‘Bizarre excuses for failing to pay the minimum wage’. The article follows an investigation by HM Revenues and Customs in the UK, which is organizing a government awareness campaign for underpaid workers. Some of the excuses are indeed hilarious and evidently made up on the go, such as ‘My accountant and I speak a different language – he doesn’t understand me and that’s why he doesn’t pay my workers the correct wages.’
But the majority are correct economic arguments for why a wage floor, imposed by law, goes against the natural workings of the market. For example, as one employer puts it bluntly: ‘She doesn’t deserve the national minimum wage because she only makes the teas and sweeps the floors.’ Another explained that a staff member was underpaid who ‘wasn’t a good worker,’ and another claimed that employees had to ‘prove their worth’. Indeed, what these ‘excuses’ point at is that the marginal productivity of those hired workers is lower than the salary the employer would be forced by law to pay them. This, combined with the fact that their opportunity cost and bargaining power are low – given their limited or non-existent alternative employments – means that those workers are earning the most that they are able to given present conditions.

This post was published at Ludwig von Mises Institute on 01/13/2017.