Walmart and Target Minimum Wage Hikes Prove the Free Market Works

The problem with minimum wages is that they are artificial. They really are. If you look at the history of the minimum wage, they were devices set by labor unions to protect the wages of unionized workers. Private non-unionized workers didn’t have a minimum wage. They were in a position to outbid more expensive union labor. To protect the wage levels of unionized workers, unions put a lot of pressure on politicians to announce an artificial floor for wage rates.

 

This is how the concept of the minimum wage was born. It has nothing to do with minimum expectations or protecting the rank and file worker. It has everything to do with unions flexing their political muscle.

 

Throughout its storied history, the minimum wage has caught a lot of heat among economists. A lot of economists are saying that if the United States and any government, for that matter, is serious about maximizing employment, it only needs to do one thing: abolish the minimum wage.

 

In fact, the minimum wage is unfair to people with no skills. If it’s going to cost an employer a fixed amount of money to take a bet on an unskilled person due to the minimum wage, the employer is incentivized to pick an experienced worker. As a result, it takes longer for an unskilled worker to get the skills he or she needs to move up the wage scale. This is especially painful when it comes to racial politics. Minorities like African Americans are the ones most hurt by the minimum wage.

 

This is why it should give economists some measure of satisfaction to learn that Target (NYSE:TGT) stores, in keeping with the trend set by Walmart (NYSE:WMT), will be raising its minimum wage. Target will be raising its minimum wage not because of political pressure or because of moral guilt but because of market pressures.

 

Backers of minimum wage have always been giving critics of the minimum wage a hard time saying that if left alone, the market would not result in higher wages. In other words, according to backers of the minimum wage, if left alone, employers would exploit the workers.

 

In the case of Target, it’s obvious that employers pay attention to market forces and are willing to rewards their employees accordingly. If not, they would get penalized. Why? Those employees would simply work for other employers who pay a higher minimum wage. It’s all about economics and very little to do with politics. I would venture that this is the way it should be.