The presumptive Republican presidential nominee, Mr. Donald Trump, expressed his support for raising the minimum wage. On NBC’s “Meet the Press,” Mr. Trump told the reporter, “I don’t know how people make it on $7.25 (the current federal minimum wage),” insisting on introducing the minimum wage.

Setting the minimum wage is one of the most prominent campaign promises that the Democratic Party generally espouses. It is unusual for the Republican Party, which values freedom, to make a remark that infringes in a private companies’ determination of wages. (However, Trump added that he would rather leave the issue to the states as opposed to the Democratic nominees, Clinton and Sanders, who state their commitment to raising the federal minimum wage.)

There are some problems with the idea that the government can determine the minimum wage level and overtime provision for private companies. Let us explain those problems in two parts.

(1) The number of unemployed increases

First, if the government establishes a wage floor, the number of unemployed people is likely to increase. When a company is in financial difficulty, it will try to survive by holding down labor costs through measures such as reducing salaries or the number of employees. If it cannot reduce salaries due to the setting of a minimum wage, it will be forced to reduce the number of employees.

The federal government of the U.S. assumes that disabled workers are the first to be asked to leave their companies if the government sets a higher minimum wage, so it has created a special exemption that permits employers to pay workers with disabilities less than the federal minimum wage. This means more and more workers other than disabled workers are likely to face unemployment.

(2) Consumers lose money

If companies try to respond without reducing the number of workers, they have to increase the price of goods to cover wages, causing consumers to suffer loss. If companies raise the prices for their goods, it will dampen consumer confidence, resulting in worsening of business conditions. After all, this will make it difficult for companies to maintain a minimum wage level.

(3) People who want to improve their skills, even for a low wage, lose freedom

Furthermore, a higher minimum wage will take away freedom from people who do not mind working below the minimum wage. Young and inexperienced people have difficulty in providing labor of high value that is worth an initial higher wage.

Take a cook as an example. Some people may be willing to serve their apprenticeship under an excellent chef for $7 an hour because they want to gain experience and become a good cook. However, if the government determines it should legislate the raise of the minimum wage to $12 it is likely that restaurants will not hire unskilled youth. When this happens, the inexperienced cannot train sufficiently, which may prevent them from becoming chefs who can then earn significant salaries in the future.

The minimum wage system seems to be designed based on the fact that there are people who want to receive assistance from the state, but it will take away freedom from those who want to accumulate various experience through work rather than being under government mandated protection.

On the evening of May 17th, the Obama administration announced that from December 1st of this year, the government will enforce a new rule that a salaried employee who makes under $47,476 (about \5.22 million) a year will be paid time and a half for every hour they work over 40 hours a week. This new overtime rule will affect about five million workers in the U.S.

The Japanese government also advocates a principle of “equal pay for equal work,” which shows that the Japanese and U.S. governments intend to raise wages for workers, but there is a danger lurking here. Let us discuss more fundamental problems of economics next.

(4) “The meaning of wages” in the market will be lost

If the government intervenes in the market to make companies maintain the minimum wage set by the government, the meaning of wages in the market will be lost.
Wages are an indicator that shows what kind of work is in good supply and what kind of work is in short supply in the market.

For example, there are many Italian restaurants in a certain town. This will lower the hourly wage for restaurant workers due to less rarity. If there are few sushi restaurants in the town, the demand for a sushi restaurant will be higher and an hourly pay for staff at the sushi bar will rise.

In fact, it is not quite so simple, but people who live in the market should pay attention to the rise and fall of wages and continue their efforts to enter businesses and occupations where hourly pay is likely to increase. The rise and fall of wages offers important information. This is the law of supply and demand.

If the government establishes wages, it will deprive each and every individual of information to judge what kind of job is in excess or short supply, or what type of business they should attempt to enter. As a result, the concept of the minimum wage will deprive people of the entrepreneurial spirit and ruin self-help efforts.

(5) The market value of labor is ignored

The idea that the government can determine the minimum wage is based on the idea that if you perform certain work, you deserve to be compensated by a certain salary.. This completely ignores how much market value the work you do has, which is reminiscent of Marx’s “labor theory of value”, that only labor can create value. Marx could not understand the roles of market and prices..

The labor value is different from one person to another according to experience and market demand.
This is the modern market society in which all workers are required to use ingenuity to survive. The economy grows through such fair competition.

Therefore, the role of the government is to create an environment that encourages competition among private companies through measures like the abolishment of regulations and protection through subsidies. The regulation that limits loans to businesses is precisely the opposite measure.

The government has some work to do before urging private businesses to pay the minimum wage or overtime-that is by amending tax laws. Reviving the nation’s economy through tax cuts and growing the whole economic pie will increase wages, eventually improving the living standard of the poor.

(Hanako Cho)