The Federal Minimum Wage Is Irrelevant. Good. 

Do you want to know the good news about the minimum wage? In most parts of the country, it is practically irrelevant.

The last federal minimum wage increase went into effect on July 24, 2009, raising it from $6.55 an hour to $7.25. We have experienced nearly 50 percent inflation since then, yet the minimum wage has stayed the same. Even in 2009, only 4.9 percent of workers were actually paid $7.25 an hour, and that number has dropped to 1.1 percent today. This is good news: It means that the minimum wage is so low relative to the median wage that it is causing few economic distortions. 

Many states have their own minimum wage laws, and some of those are high—Washington, D.C., is at $17.90 an hour, Connecticut is at $16.94, and California is at $16.50. Then there are roughly 20 states with no minimum wage law at all, many of which are experiencing strong economic growth and in-migration. This is unsurprising because low minimum wages reflect a broader preference for economic freedom. By contrast, in D.C., Connecticut, California, and other states, high minimum wage increases have predictably decreased employment and forced firms to relocate, especially in the fast food industry.

It makes one wonder about the wisdom of a national minimum wage in the first place. The U.S. economy is not one-size-fits-all and the cost of living varies greatly. A $7.25 might be penurious in California but generous in Mississippi. 

The answer is to repeal all the minimum wage laws and get the government out of the business of setting price caps and floors on commodities, even labor. With a floor on prices above equilibrium, supply will exceed demand, producing a surplus of labor willing to work at that price—otherwise known as unemployment. Given three employees, if one had the choice of paying them each $10 or two of them $15 and having the third one on welfare, why wouldn’t you choose the former? 

The jobs that pay the minimum wage are not intended to be careers. They’re intended to be stepping stones for young, unskilled workers to graduate to higher-paying jobs later in life. I personally have one employee who told me that his first job paid the minimum wage, stacking inner tubes at a water slide park. Five years later, he is making multiples of that. But by taking that job, he acquired skills—not in stacking inner tubes, per se, but in putting on a uniform, showing up on time, working in an organization, and having a cheerful, positive attitude. These are skills that he will carry with him through life.

By raising the minimum wage, we are depriving young people of these opportunities. No teenager in Connecticut will get an entry-level job for $16.94 an hour, bagging groceries or stacking inner tubes. Their first job will most likely come at 22, when they graduate from college and the stakes are higher, never having acquired those basic habits of showing up on time and conducting themselves professionally. These are jobs that kids take while they’re going through college to get some spending money and to grow up a little.

A minimum wage is a price floor, and it’s bad for the same reason that price caps are bad. If we capped the price of corn at a level far below the market-clearing price, massive shortages would develop overnight. The same logic applies to labor. If we could legislate prosperity, why not make the minimum wage $100 an hour? $10,000 an hour? The unemployment rate would skyrocket. The federal minimum wage has not moved in nearly two decades, and for now, that is something close to a blessing. We should not be in a hurry to change it.