I recently posted about the rise in the Federal Minimum Wage, and received a couple well thought out comments from other personal finance bloggers. Jason, from Smart Money Daily, left a very good comment about why he believes there should be no minimum wage at all in the US.
Here is Jason’s comment:
I agree with Eric (Eric’s comment and my response). There is no need for ANY federal minimum wage, given the states have their own, often higher, minimum wages. It is mostly political posturing. Furthermore, I’m fairly confident that a federal minimum wage is illegal. Where in the Constitution is the federal government authorized to regulate wages? I sure don’t see it.
And I’ll go further and say that I don’t think the minimum wage at any level -federal, state, or local - is a good idea. Not $7.50, not $5.15, and not $1. Wages should be determined just like prices are, by supply and demand, and they should be mutually agreed upon by the employer and employee, without the government interfering.
In fact, I’ll go as far to say that all wages would be higher if there were no minimum wage. This is because there would be more economic growth, more overall prosperity, and eventually, this would make the minimum wage even more irrelevant than it is now. If, right now, there is a business who could afford to pay a laborer $5 an hour to do a menial task, and there is a laborer with no other skills who would be happy to get paid $5, then why should it be outlawed? It makes no sense.
My response:
Jason, I understand your views, and to a point, I agree with you on some of them. However, there are some points I do not agree with. If the raise were limited to $0.70, it would be political posturing. But over the course of 2 years, workers are receiving what amounts to almost a 50% raise. That is real money and helpful to those who earn little.
Even though a 50% increase is a large percentage, it will not solve every money issue for minimum wage earners. Many people have money problems not because of how much they earn, but because of how much they spend (granted basic living expenses eat up a larger percentage of minimum wage earners’ income than others). But it doesn’t matter how much you earn if you spend more than that amount. That goes for minimum wage earners as well as millionaires. (See MC Hammer or Michael Jackson).
Most states do have their own minimum wage, but there are 5 states without any minimum wage. Kansas has the lowest minimum wage of any state, which is actually lower than the federal minimum wage. The Federal Minimum Wage applies for those states without a minimum wage, or if their minimum wage is lower than the Federal Minimum Wage.
The Federal Minimum Wage is legal, though the Constitution does not specifically spell it out. There are many laws not spelled out in the Constitution; the Supreme Court is employed to interpret these rules for legality. In 1933 there was a minimum wage law that passed as part of the National Industrial Recovery Act which was declared unconstitutional in 1935 and abolished. The current Federal Minimum Wage law was made legal by the Fair Labor and Standards Act of 1938.
I do not agree with having no minimum wage. Under the current system there are too many people who would be taken advantage of and who would be put in situations where they would have no way out.
For example, think back to the coal mining and factory towns around the turn of the century that paid their workers in scrip, coupons, housing plus food, or a combination of any of these. An absence of minimum wage would allow employers to pay their workers a small amount of legal tender currency, and pay the rest of the earnings in a form of payment that would only be good for use in their stores or on their properties. These monopolistic enterprises are never good for any economy and legalizing this type of system again would effectively open the US workforce to a new version of indentured servitude.
At one point in our nation’s history these types of working and living conditions were common. Thankfully, current laws prohibit this type of arrangement between worker and employee. Even today, many people would accept these conditions because it would be a guaranteed job and they would have their immediate needs taken care of. You can also bet that many immigrants or illiterate workers would be tricked into signing agreements that would keep them under these conditions for long periods of time.
In my opinion, removing the minimum wage system would put our country into a social regression and would have a negative effect on the economy of our nation as well as the rest of the world.
Of course, this is just my opinion. Thanks for the great comment, Jason. 
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{ 2 comments… read them below or add one }
Thank you for the well-thought-out response.
On some level, we just have conflicting legal and moral philosophies. For example, I do not think the federal minimum wage is constitutional, even if the Supreme Court ruled it to be (contradicting an earlier court ruling, as you pointed out). I have the view that the Constitution is the law, and any power not expressly granted the federal government in the Constitution is a power it does not have. Laws passed by Congress do not override the Constitution — Congress cannot, for example, make a law abridging your right to free speech (at least not constitutionally — the Constitution is disobeyed by our legislators and presidents routinely, though).
Secondly, I just don’t agree with the impact abolishing minimum wages would have. I think people’s problem is not how much they earn OR how much they spend — but how much regulation and bearacracy get in the way of economic growth. It is impossible for anyone to “take advantage” of someone else without using force or fraud. The government’s legitimate role is in regulating force and fraud, but not regulating mutually agreed-upon wages. There are people today who would work for $5 an hour and there are people who could afford to pay them that, but no more. Why should these people not be allowed to work? If, instead or receiving welfare (or worse yet, NOT receiving welfare), the person were allowed to work for $5 an hour, he/she would have that much more to contribute to the economy, etc., eventually (in short time) resulting in higher wages for everyone. Furthermore, with the less expensive labor creating more goods and services, prices would also decline, allowing people to stretch their dollars further.
I’m just trying to make sure you understand my point. I understand where you are coming from, and I used to agree at one point… But now I disagree. Thanks again for the response!
Simply put a raise in the minimum wage is bad for all involved because either 1 out of X jobs will be lost to save the extra money or prices on the out bound will increase to of set the additional cost. This will mean that for the person who got the raise and those that did not their money will not buy as much so they are in the same boat or worse. Once this happens everyone will complain and demand that the minimum wage be raised again and the same thing will happen. Just requiring companies to pay a person more does not benefit anyone and is always just a political ploy to try to gain more support from the ignorant masses who, if properly educated on how to think not what to think, would not vote for this stupidity.