John Hawkins: Can you explain why the minimum wage is a bad idea?
Walter Williams: First, Congress can indeed legislate that people get a higher wage. But, they can't legislate that people are more productive. For the most part, in a free market economy, wages are related to a workers productivity. For example, if a worker can produce six dollars worth of productivity per hour, if that's all he can produce, and you legislate that he must be paid eight dollars and hour, then it's a losing proposition to pay someone eight dollars an hour when he can only produce six dollars worth of value. So the employer may have several different responses. Either he's going to discriminate against the employment of low skilled workers who can only produce six dollars worth of value and hire someone who can produce eight dollars worth of value or he's going to automate. Both responses mean lower employment for low skilled people. So, the minimum wage law discriminates against low-skilled people.
Minimum prices in general tend to discriminate against the lesser skilled person or the less preferred item. Let's say ten workers show up and you only can hire five. Well, you can't discriminate based on price because you have to pay them all eight dollars an hour. So you may hire according to what you like. So if you prefer Catholics to Jews or whites to blacks, you'll have a tendency to indulge your preferences. You can apply that phenomena to anything.
If we made a law, let's call it a "minimum steak law", that is, fillet mignon and chuck steak both sell for $10. Well, the cost of discriminating against chuck steak would be zero, because you have to pay $10 anyway. The way that less preferred things compete with more preferred things is by having a lower price. Even though people prefer filet mignon to chuck steak, chuck steak doesn't have any problems selling at all.
As a matter of fact, I wrote a book a number of years ago called "South Africa's War Against Capitalism" and in that book I give quotation after quotation from white, racist, unions that would never have a black as a member of their unions. Yet, they were the major supporters of minimum wage laws for blacks. Their stated reason for doing that was because they said they wanted to protect white workers from having to compete with low wage, low skill, black workers. Of course, the rhetoric behind the minimum wage in the United States is different, but it has the same effect.
