Dangerous Samaritans: how we unintentionally injure the poor

USA Today (Society for the Advancement of Education), March, 1995 by Michael Bauman

We think we are doing the right thing. We think that if we pass laws to raise their wages and lower their rent, if we give generously to help support mothers without husbands and children without fathers, we can aid the poor in their flight from poverty and alleviate much of their distress while they are still in it. We are wrong.

We forget that good intentions are not enough and that virtually all government programs of any significant scope carry with them great loads of unintended consequences. We forget that aiming is not hitting and that meaning well is not necessarily doing well.

First, we think that if we pass laws mandating higher wages for the lowest paid workers, we can increase their income and thereby aid the industrious poor in their escape from poverty. We forget that the lowest paid workers are normally those with the least skill and the least experience, and that, in the marketplace, they are the least desirable of all employees. By artificially elevating their wages, we render them even more undesirable, thus making it increasingly unlikely that ever can get or keep a job. This happens because we forget that a wage is not merely a selling price for a worker, it is a purchase price for an employer. We pass laws preventing the least desirable workers from selling their services at a price their prospective employers, and ultimately the consumer, can afford.

If you have little or no skill and experience, yet the government requires you to sell your services at an artificially elevated price, you will not find anyone to purchase them. In order to pay for your overpriced services, an employer would have to raise his selling price. Should he do so, he is increasingly likely to go out of business, and all his current employees, who are more skilled and experienced than you, and more worth the money he pays them, would lose their jobs because those companies wise enough not to hire you at the legally mandated price can produce the same product at a lower cost to themselves and their customers. We forget that all workers work not merely for their employer, but also for the consumer, and that consumers wisely try to make the most of their money. A product that is overpriced because of its burgeoning cost of production remains on the shelf or in the warehouse. In short, because of our desire to be moral and compassionate people, we have created more unemployed workers and more poor, whom we then foolishly try to help with minimum wage laws.

Perhaps the point can be made more graphically at the corporate level. Imagine that, in an effort to aid portions of the auto industry, we decided to prop up the profits of the weakest car maker by passing a law that put a minimum price of $25,000 on each vehicle it sold, thus dramatically increasing the profits it enjoyed from every sale. Despite our good intentions--indeed, because of them--that automaker soon out of business because, no matter much U.S. consumers might want to "buy American," very few can or will pay that much money for cars comparable to those available elsewhere at half the legally mandated price. The same principle holds true when what is being sold is not a car, but an unskilled employee's overpriced labor. When minimum wage laws are in effect, the choice is often not between the legally mandated wage and some other wage, but between the legally mandated wage and no wage at all. The latter option becomes increasingly more attractive and increasingly more common.

To such harmful, but well-intentioned, legislative conniving, no thinking person ought to consent. If you want to make the marketplace more moral or be an agent of effective compassion, minimum wage laws are not the answer.

Instead, as economist Charles Van Eaton has argued compellingly, we ought to encourage more entrepreneurship like that of marketplace giants Dave Thomas of Wendy's and the late Ray Kroc of McDonald's. Far more than any government program ever has or could, they have aided the cause of the poor.

Kroc and Thomas provided low-income individuals with inexpensive ways to treat their hard-working spouses and their underprivileged children to enjoyable meals outside the home, a privilege reserved largely for the prosperous before the advent of fast-food restaurants. Even now, decades after the inception of McDonald's, children are filled with excitement at the prospect of a cheeseburger, fries, and a Coke. Moreover, their mothers are spared the drudgery of cooking yet another meal and cleaning another load of dirty dishes.

Kroc and Thomas also created all-important entry-level jobs by which unskilled or inexperienced workers learn critical marketplace lessons, such as the importance of appearance, punctuality, deference, teamwork, and dependability. These positions also help them acquire management and public relations skills, as well as obtain the personal references and endorsements necessary to get better jobs with other employers in the future--and along the way, they earned a modest wage to boot.