Carpe Diem

The minimum wage is unfair to small business owners

Economist and blogger Steven Landsburg presents an interesting argument against the minimum wage – it’s unfair to burden a relatively small segment of the population with the higher costs of the minimum wage – small business owners who employ low-skilled workers and the customers who patronize those small businesses.  Here’s an edited version of Professor Landsburg’s main fairness argument against the minimum wage:

Minimum wages are still bad policy, for another reason. Namely: If we’re going to transfer income to low-wage workers, it’s both fundamentally unfair and politically unwise to put the entire burden of that transfer on a relatively small segment of the population (namely the owners and customers of businesses that employ a lot of low-wage workers). The right thing, given that we’re going to make this transfer, is to fund it as broadly as possible — say through an increase in the Earned Income Tax Credit, which comes out of general tax revenues.

When we collectively want to raise the wages of unskilled workers, should we put the entire burden of that desire on those who happen to employ unskilled workers? Or is it fairer for those who have collectively made this decision to share the burden?

Here’s, to me, the main point: The owner of your local McDonald’s employs, say, 6 low-skilled workers, who are (at least slightly) better off because he’s there to employ them. What have you done for low-skilled workers lately? Let’s suppose your best answer is “nothing.” Then, if we’re going to try to do something additional for low-wage workers, shouldn’t it be your turn, rather than the McDonald guy’s turn, to make a contribution?

Fairness tells me that the cost of a widely-supported program should not be dumped on a small segment of society, and moreover that it especially should not be dumped on that small segment of society that has already helped to alleviate the perceived problem (i.e. those who have already been providing jobs for unskilled workers. Political wisdom tells me the same thing. It’s very easy to support programs that other people will have to pay for. But voters, like everyone else, should bear the costs of their own decisions. Letting people vote for expensive programs that “somebody else” will finance is a good recipe for getting people to vote irresponsibly.

72 thoughts on “The minimum wage is unfair to small business owners

    • Moe, the local Mcdonalds is a small business if it is owned by a franchise operator. About 70% of Mcdonalds around the world are franchise owned and I assume that the same can be said for the US stores.

      A local Mcdonalds franchise operator is a good example of a small business owner who employees a large number lower skilled workers.

      • I hear what you are saying. However, the McDonald’s franchisee can leverage a strong brand name and purchasing power of the larger company – not exactly the same as a mom and pop pizza parlour.

        Still, thanks for pointing out my error.

        • Are you claiming McDonalds doesn’t face sufficient competition in the low-skilled labour market from Wendy’s, Arby’s, Chipotle, Chili’s, Burger King, Taco Bell, Olive Garden, Applebee’s, landscaping companies, cleaning services, an assortments of drugstores, and other retailers such that it can drive down the price of labour?

          • They are the same in the sense that they compete with each other and they are both small businesses. In what way do you think they differ such that McDonald’s has an advantage and can hire workers more cheaply?

        • Moe: ” the McDonald’s franchisee can leverage a strong brand name and purchasing power of the larger company – not exactly the same as a mom and pop pizza parlour. ”

          What point are you trying to make with that statement? Are you saying that the McDonald’s owner who pays dearly for the right to own a McDonald’s restaurant gets something in return for that much larger investment?

          • Congratulations.

            Why wouldn’t he just open a bruger joint on his own if it wasn’t advantageous to him?

            What kid is gonna want to go John Deweys Burger stand over a McDonalds?

            Are you stating all McDonald franchisee owners are morons?

          • What do you mean “what kid would want to go to John Dewey Burger stand”? As a customer or as an employee.

            I’ve worked since I was a young teenager. I don’t remember any particular cache associated with the employees of McDonald’s vs. employees of other restaurants. In fact, working at McD’s had the opposite of cache. If a non-franchised local burger joint is in business, likely it is because people patronize it and it has found employees. So, what’s your point again?

          • What kid is gonna want to go John Deweys Burger stand over a McDonald’s?

            I don’t know about “kid”, but I sure would. My experiences with single store burger restaurants are almost always better that my experiences with McDonalds.

            I’ll bet John makes a hell of a good pastrami burger.

          • The advantage McDonalds franchisee has over me opening a burger joint, in my opinion, is the franchisee has a gloabl brand – the clown, the golden arches, playgrounds, TV ads – how much value does one place on that – I weight it heavily. That’s my only point – speaking to franchisee vs. mom and pop.

          • Okay, but you know the franchiser is not stupid. They make the mom & pop pay up for all that when the buy into the franchise. But, this post isn’t about competing for customers, it’s about competing for labour.

            Are you suggesting that McDonald’s has some kind of unusual market power in the labour market because everyone knows the clown and the golden arch? Is that important to somebody looking for a job? If so, how? You seem to be dodging that question for reasons I can’t understand.

          • There’s nothing being dodged on my part – I’m trying to keep my point from being taken god knows where…

            I’m speaking about a franchisee vs. a mom and pop from the resturaunteur’s standpoint – not about the advantage of one or the other to a job seeker.

            Here’s John’s question to me:
            Are you saying that the McDonald’s owner who pays dearly for the right to own a McDonald’s restaurant gets something in return for that much larger investment?

            THIS is the context within which my comment as made.

          • Okay, Moe. I didn’t realize you intended to go off topic. Sorry about that.

            But, in response to what you are talking about, I will say that in return for all of the the things a franchise offers a franchisee including an established brand, advertising and perhaps purchasing power with suppliers, the franchisee makes a very large investment, such that the risk adjusted return to the capital invested in the franchise is is unlikely to be higher than if you chose a different alternative like starting your own restaurant, non-franchised restaurant.

            If you think you’d be good at running a restaurant, but not building and supporting a brand, you’d probably opt for the franchise. If you like running a restaurant and you’re confident you can build a brand (maybe you’re a famous chef or you’re famous all over town for your juicy burgers) and having your name on the restaurant has value to you, you might choose to start your own thing.

  1. Small business owners are not major donors to Democrats. Government regulations and tax policy are purposely designed to favor larger incumbents, who are big donors, over small and emerging businesses. That would seem perfectly “fair” to me if I were in Congress. Pay to play.

  2. Prof. Perry,
    Your argument misses the whole point: the minimum wage has nothing to do with improving the lot of low-wage workers. As others have commented here, it mostly throws more of them out of work. A higher minimum wage is used by unions as a base from which to ratchet up their own, much higher wage scales. It is also useful, especially in right- to-work states, to make low-cost unskilled labor less competitive with unionized workers. Obama is rewarding his union backers, not trying to help the poor (except in appearance.)

    • Andrew: It’s a point made by Steven Landsburg (not me), and presented here as one additional argument against the minimum wage. In a previous post, I’ve covered the topic of how the minimum wage is used to reward unions.

      • If you have to pay 9 bucks an hour instead of, say 5, to get someone specifically to do grunt work, there’s less of an advantage to hiring someone to do that specifically, rather than having your regular employees (who may or may not be members of a union, and make, in a RTW state, perhaps $12) split up the most necessary part of the tasks. More to the point, there’s less advantage in businesses relocating to RTW states if they’re going to have to pay the minimum wage, anyway, assuming that the market rate would otherwise be much less. Given that unionized workers are generally on a much higher pay scale, it isn’t of primary importance to them, but might make some difference at the margin.

  3. A bit disappointed you have re-posted an article debating either side of the min. wage argument as “fair” vs “unfair”. My opinion (and I believe yours as well) is devoid of any illusions of what is and isn’t fair but rather based on empirical evidence and logic of positive vs. negative consequences to individuals, businesses, and the overall economy.

  4. I’ll follow-up on a prior comment to show why some labor standards, e.g. the minimum wage, are needed.

    I stated before:

    I know someone who runs a business delivering baggage at airports.

    When potential employees ask how much they can make, he says there are two or three people who make $150,000 a year.

    After people are hired, they find out they actually make less than $10 a hour and quit after two or three weeks.

    The owner and his son make $150,000 each.

    To follow-up:

    If I was advising the business (for a fee), I’d find ways to “string-along” the employees longer, e.g. say it’s a slow season or there should be some big contracts soon.

    The owner and his son may be able to get $50,000 of work out of them for $5,000.

    • Also, John Dewey made a point that the Vietnam War explains the rising teen labor force participation rate. I’m sure, that’s one significant factor, among many.

      Yet, that doesn’t explain why the teen labor force participation rate was much higher in the late ’70s, than in the late ’60s, when the military was at its smallest size, since the Great Depression, and the real minimum wage remained above $8.

      • I don’t believe participation in the workforce in the late 1960s and the late 1970s were much different at all.

        I agree that Viet Nam era military expansion only explained part of the high levels of teen workforce participation in the 1960s and early 1970s.

        It is clear from the data that Boomer teens worked more than the teens of successive generations. That’s probably because our parents – who were raised in the Depression years – didn’t coddle us.

      • One more important point about workforce participation rates: the trends for women and for men are sharply different.

        Workforce participation, Men
        1950 – 86%
        1960 – 83%
        1970 – 80%
        1980 – 77%
        1990 – 76%
        2000 – 75%
        2010 – 71%

        Workforce participation, Women
        1950 – 34%
        1960 – 38%
        1970 – 43%
        1980 – 52%
        1990 – 58%
        2000 – 60%
        2010 – 59%

        That growth in female workforce participation was partly due to improved birth control and partly due to changes in attitudes about female workers. No doubt the increased propensity of all women to work through the 1970s counterbalanced the decline in active duty military personnel during the same period.

          • The teen labor force participation rate fell from the peak of about 60% in the late ’70s to below 35% today.

        • Is that teen male and female or all male and female? BTW, John, teen unemployment rises sharply during recessions. There was a recession in the early 70′s and the recovery peaked in the late 70′s.

          Because more teens get discouraged, teen participation rates would drop as teen unemployment rises. Since most teens have the option not to work, I think what’s more important to the discussion of minimum wage is the teen unemployment rate.

          • What I provided was the participation rates for all women and for all men. I don’t believe the BLS provides statistics for age groups by sex.

            My point was that all women participated more after the birth control pill and after Women’s Lib movement. This affected teen women as well as adult women. So the growth in female participation – at all age groups – would have counter-balanced the decline in military personnel.

          • I do not believe that many 18-year-old and 19-year-old males had the option to not work in the late 1960s and early 1970s. We were either getting drafted, trying to fund college, or starting families. Few male students had student loans or funding from parents. Some older male students did have GI Bill funding.

            The expectations for young folks today are far different.

          • One more point about teen participation – and teen unemployment. Low-skilled teens today have much more competition than we did 40 years ago. Illegal immigration has been estimated to be 700,000 per year the past decade. As recently as 1980, such immigration was estimated to be only 150,000 per year. Many of those immigrants come to the U.S. with far more skills and much better work ethic than possessed by our teen citizens. What a high minimum wage does is force the low-skilled teens to compete at the same wage as the more experienced immigrant from Latin America.

        • If I was advising the business (for a fee), I’d find ways to “string-along” the employees longer, e.g. say it’s a slow season or there should be some big contracts soon.

          Seriously, man? That is pretty vile.

          • Don’t change the topic here. You are now, on record, saying that you openly advocated lying to employees to get labor out of them. That is disgusting. If the empirical, theoretical, and logical evidence of minimum wage didn’t suggest you’re wrong, then this statement along would cause me to question anything you said.

            And now you are trying to justify yourself saying “I speak for the worker, the poor, the oppressed?” You are the worst form of hypocrite.


          • It’s the same topic. You don’t want to give any protection “for the worker, the poor, the oppressed.” You are the worst form of hypocrite.”

          • Who will giving them a minimum wage protect them from your predatory behavior? Because they’ll make a few bucks more while you screw ‘em over?

            I try my best not to judge people, but you are making it really hard.

          • Are you angry, because you finally woke up to the idea labor standards, including a minimum wage, are really needed?

          • Peak, you’re such a twit. No company can consistently lie to its employees and retain workers. People talk – or is the problem that you think the you’re so much more enlightened than these people that they can’t sort anything out without you sticking your giant nose into their business? Yes, that’s it. You just can’t imagine that low-skilled workers aren’t stupid.

          • And you don’t want a minimum wage, or any labor standard, for factory workers in China?

            Wow, talk about changing the subject!

            Peak, I neither want nor don’t want anything for Chinese workers. They are beyond my control. It’s up to them to decide what they want for themselves.

            Wishing things for other people is a dangerous business – for them.

    • Well, in the beginning of my career, I was such a consultant. I would fire you immediately if you worked for me and suggested such an outrageously stupid thing. Every company I’ve ever worked with would fire you immediately if you were their consultant.

      Lying to our employees will quickly build a reputation of slimyness that will ensure that we attract only the dregs of the labour force.

      Our poor reputation will quickly spread to our customers who will wonder what else we’re lying about. All companies trade on their reputation.

      You have never actually worked in the private sector, have you Peakadoodle? As I remember it, everyone in my econ program was dying to get a job at the Fed.

    • Peak trader,

      What does this this example of your “friend” and how he runs his company have to do with the price control that is called minimum wage???

      Okay, as long as we are into stories, I have one for you. I have a friend who has an 19 year old son who is a high school dropout. He has had little work experience and as such has very few marketable skills. Now this boy was fortunate enough to find an electrician who ran his own small business who agreed to take him on as a helper at the minimum wage. The deal they struck was that the electrician would hire him and pay him the minimum wage for the number of years that it took for the boy to gain experience. At which point the electrician would be able to pay him more because he could take on enough extra work to cover the extra costs of the young boy’s pay.

      However, with the proposed increase in minimum wage that would increase the cost to the electrician hiring this young man, the electrician changed his mind and did not hire the boy because he could not justify the extra cost in salary from the minimum wage increase. He decided to stay a one man business and the young man stayed unemployed and unskilled.

      Now you tell me how the minimum wage increase helped this young man? You tell me what you would say to this boy? Explain to him how the minimum wage helped him. Explain to him why the government mandated minimum wage increase that caused him to lose this opportunity to get a job and improve his skills and build a future was actually a good thing for our country as it improved our economy and gave people a fair income for their work.

      Explain all the things that you have stating here about the good effects of minimum wage laws………but when you do, be prepared to duck because I suspect that he will punch you right in the face.



      • Ah, you see, GMF, the thing is that an outrageously high wage and enormous compliance costs of “labour standards” would supposedly make it more expensive for Peak’s morally bankrupt friends to….well, in all honesty, hire anyone. So nobody can be hurt by them. Capice?

      • Givemefreedom, the minimum wage isn’t a price control like trying to control inflation.

        I would tell the boy, you can’t afford to pay rent, buy food, own a car, buy insurance, buy gasoline, etc. on $8 an hour, for a “number of years.” If you plan to mooch off your parents, other 19-year old high school dropouts will be at a competitive disadvantage.

        If you don’t need a job, you can learn all you want from the electrician.

        If you need a job, the electrician by offering you a low-wage either believes you’re a poor investment, there are better investments, there’s not enough money to pay you a decent wage, etc..

          • Why can’t the electrician hire him at $10 an hour part-time?

            He’s already offering paying him more than $10/hr. Don’t you think experience and training have any value?

            That story of lost opportunity is probably playing out tens of thousands of times since Barry’s State of the Union address.

            Givemefreedom, the minimum wage isn’t a price control like trying to control inflation.

            A price floor isn’t a price control? Oh Wow. Listen to yourself! Anything that limits what I can legally ask for my labor, or for anything else is a price control. What else would you call it?

          • Why can’t the electrician hire him at $10 an hour part-time?

            Seriously? You pro-minimum wage crowd scream that you’re saviours of the poor because raising the minimum wage will result the low-skilled worker making more money.

            If the electrician hires him part-time, then the kid will NOT make more money as a result of the minimum wage increase, his training will go slower and he will have to work for a low wage longer. How exactly does that make him better off?

            The electrician is already being charitable. It takes a lot of work to train a completely inexperienced person and that person learns slower with less practice time, increasing the cost of training for the electrician.

            Everyone is worse off because you want to polish your ego using the tattered remains of other people’s lives. I’d punch the hell out of you too.

          • Ya’ gotta love Peak’s argument, which basically boils down to: “Why can’t you perform all sorts of gymnastics, which make it more expensive for you to accomplish your goals, so that I can feel smart and moral?”

        • Peak,

          I think the boy just punched you right in the face.

          You haven’t a clue, have you? He is now unemployed only because of the minimum wage!!!!!

          Mooch off your parents?? Other 19 yr. old dropout would be at a competitive disadvantage if we let you take that job below minimum wage????

          I suspect that he would not just punch you in the face but would likely lay a right good beating on you.

          He might

    • I know someone who runs a business delivering baggage at airports.

      I’ve read your comment twice, and I don’t see how a minimum wage would improve anything in this case, and I can’t imagine what labor standards might be involved. Actual fraud is already actionable, but being a deceptive sleazebag isn’t.

      Is there a point you wanted to make with this little story – other than that if something sounds too good to be true – it probably is?

      Freedom of association is alive and well. A valuable lesson has been learned by those folks. I hope they thanked their former employer for the great education.

      Anyone who thinks they can make $150K/yr delivering baggage is encouraged to contact me, as I’m selling shares in a bridge.

  5. So the MW law demands that if you are young, unskilled and marginally educated, then you must find work that pays over $9p/h. If you are not able to find that job, then you are NOT allowed to work.

    This is not a minimum wage law, its a mandatory CAN’T WORK law. The law requires that you remain unemployed.

    We have a moron occupying our Oval Office.

  6. The minimum wage is unfair to small business owners.

    I pay taxes into the local school system – and don’t have kids. That’s unfair as well by this standard. But I don’t bitch because, unlike Mr. Landsburg, nobody ever promised me the world is fair.

    • Seriously, Moe? Screwing innocent people is no longer morally repugnant because you, an innocent, got screwed? Those are some very Peak-like moral standards you have there.

      • seriously, has this blog become the “appeal to practice” fallacy headquarters of somehting?

        i think i have seen arguments from 4 or 5 people in the last couple days that all basically boil down to “so and so did something bad, so i can do something bad or so this recent bad thing is not really a bad thing”

        we need a logic lesson around here. this is an epidemic far worse than the plague of its vs it’s.

        i would love to see mark add a monthly/quarterly/whatever logic rant where appeal to practice and appeal to authority fallacies get pointed out.

        it’s getting bad around here.

  7. “So the MW law demands that if you are young, unskilled and marginally educated, then you must find work that pays over $9p/h. If you are not able to find that job, then you are NOT allowed to work.”

    No, you find work under the table for whatever wage you and the other person agree, and collect any benefits that status allows (EIC, unemployment, food stamps . . .). The underground economy is huge, but I don’t know how much of that is due to the minimum wage. I would not consider any statistic on the low end of the wage scale valid without factoring that in.

    • So Walt, your point is that MW laws cause workers and employers to break the law?

      The illegal things that some people do in response to the MW has nothing to do with whether the MW is right or wrong.

      It is wrong on all levels. Morally and ethically because the government has no justification in deny employers and employees the right to voluntarily enter into a mutually beneficial contract of employment just because they don’t like the payment terms. Economically because MW hurts the economy and hurts the most vulnerable in our society the most.

      • I was simply replying to MacDaddyWatch that people are working for less than $9 per hour under the table (his number), and a lot of them. Some even prefer the situation to taxation. I don’t want to make any ethical or moral judgement about the minimum wage or about people dodging taxes.

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