Open Letter to a Business Owner Who Supports Raising the Minimum Wage

Great post by Don Boudreaux of Cafe Hayek.

"Ms. Gina Schaefer,
Washington, DC

Dear Ms. Schaefer:

You’re identified in a mass e-mail, sent by “Business for a Fair Minimum Wage,” as “co-owner of nine ACE Hardware stores in Washington DC and Maryland.”  And you also signed a petition calling for a higher minimum wage – a stance that you justify with the following argument:

“We have nearly 200 employees and our starting wage for sales associates is $10 an hour.  That helps us attract and retain employees who deliver the great service that draws large numbers of customers to our stores and enables us to stay competitive. Increasing the minimum wage will help promote a healthy, dedicated workforce and keep more dollars circulating in our local economy.”

Your statement raises many questions.  For example: if all employers would be better able to “stay competitive” by paying all of their workers wages above the current minimum, why do they not already do so?  After all, you now pay such higher wages.  Why do you suppose that your particular business plan will work equally well for other firms?  Asked differently, why do you presume that other business owners are so inept that they’re leaving easy money on the table?

If history is any guide, you – a business owner who supports a higher minimum wage – actually presume no such ineptness on the part of your competitors.  Your support for raising the minimum wage is almost surely driven by your wish to increase your profitability by throttling your competitors.  Quite likely, your rivals now profitably use business plans that rely more heavily than does your plan upon the use of low-skilled workers.  Because your workers already earn wages at or above the proposed higher minimum, your costs will be unaffected by a hike in the minimum wage.  Your competitors, however, won’t be so lucky.  When their costs are forcibly raised, they’ll be less able to compete effectively with you for customers.  Some rivals will exit the industry while others scale down their operations.

Your enhanced profitability, in other words, will be extracted from the hides not only of your hapless competitors but also from the many low-skilled workers whose employment prospects will shrink – and all while you wear a cloak of faux altruism that, sadly, fools the gullible into thinking that you’re a friend of the poor.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030"