What would you say if I told you that a significant portion of America’s poorest demographic is working for far less than the minimum wage? Would you call it an outrage? Would you demand stricter enforcement of minimum wage laws? Would you blame it on greedy corporations trying to create indentured servants out of America’s poor?
Now, what would you say if I told you that I, as a college student (or 4 years ago, while I was in high school), were getting an unpaid internship with a big company? Would you congratulate me? Would you comment on how useful this would be for my future employment prospects? Would it occur to you that $0.00 is far less than the federal minimum wage of $7.25?
This is an example of the same scenario framed in two different ways. In the first case, we’re looking at the situation from a societal perspective, thinking about some group of hypothetical poor people, who for some reason outside of their own control have this lot in life which puts them into this situation which would be terrible to remain in their entire lives. In the second case, we’re looking at the situation from an individual perspective, thinking about why a real individual may choose to voluntarily commit himself to this situation at a given time, and what that individual gains. Quite a few people, especially those who have not (yet) completed a college education nor gained any experience in the work force, would much rather work for less than the minimum wage than not work at all. This is why unpaid internships are considered an achievement, rather than a travesty.
Now, let’s say I’m two months into that unpaid internship, and I’m doing such a good job that my manager wants to reward me by paying me something small. Maybe $3.00 an hour. That’s better than $0.00 an hour, right? But wait, he can’t- if he pays me any wage at all, then the work is no longer termed “volunteer” work, and I must be paid at least minimum wage. So before I can get paid anything, I need to be worth $7.25 an hour (ignoring health benefit requirements for the sake of simplicity). Well, seeing as how it took me 2 months to be worth $3.00 an hour, it will probably take me about another two months to be worth $7.25 an hour. So, assuming a 9am to 5pm normal workday, I spent about 340 hours at the $3.00 an hour level. That’s $1,020 in wages I can’t make because of minimum wage laws. Why are minimum wage laws supposedly helpful to me, when they’re forcing me to forfeit $1,020 in wages?
Of course, pointing out this contradiction in logic assumes the legality of unpaid internships. Apparently, President Obama’s administration has also noticed the contradiction, and is seeking to resolve it. However, rather than recognizing that unpaid internships void the incentive behind minimum wage laws, he instead is taking the stance that minimum wage laws void unpaid internships, despite maintaining a program to offer unpaid internships himself.
So if we void unpaid internships under minimum wage laws, where does that leave workers who need employment experience but can’t quite cut it at minimum wage? Unemployed, of course. But then, you wouldn’t know it from that New York Times article, which doesn’t seem to recognize that the highest teen unemployment rate ever recorded might have something to do with the increased minimum wage. In this terrible climate of unemployment, you’d think the politicians in Washington might want to rethink the minimum wage laws which have been demonstrated to cause greater unemployment, especially among the nation’s unskilled workers.
If this administration actually wants to help increase employment and reduce the gap between the rich and the poor, eliminating the minimum wage would be a great first step. The government cannot accurately gauge the usefulness of voluntary contracts between workers and employers through a single number, so they should really just let the workers choose whether they would like to work for the wage that their potential employer is offering.
Since I’ve gotten some comments in other forums suggesting all kinds of horrors that will befall the US should we ever abandon the beloved minimum wage, I thought it might be good to provide a little bit of empirical evidence to dispel some of these fears. As such, here’s a list of developed nations with no minimum wage:
United Arab Emirates
Does it strike you that this list contains some of the wealthiest (per capita) nations in the world, including nations with some of the highest standards of living in the world? I hope this helps to calm some of those fears about losing our standard of living and good working conditions.