As you may know, I’ve appeared on The O’Reilly Factor numerous times over the past several years, and on many topics, Bill O’Reilly and I see eye-to-eye (even though he’s about six inches taller than I am). There are notable exceptions though, including energy issues and, a new one as of last week, labor. Bill had just gotten finished discussing all of the historical and economic data proving how misguided it is to think that we could achieve a better economy through government-coerced wealth redistribution rather than through capitalism. Then, in what seemed like his very next breath (maybe the next segment, or even the next night’s show), he actually seemed to endorse the idea of having the government raise the (federal) minimum wage to a “living” wage, a wage high enough for a person earning it to support him/herself and a family (i.e. comfortably above the poverty line), and then subsidize employers who pay this “living” wage through income-tax deductions. Forget for a moment that nobody’s intended to be supporting a family on minimum wage (it’s supposed to be a student/training wage), and that those who are (supporting families on it) have clearly ignored my simple 8-step prescription for staying out of poverty in America — what Bill advocated was essentially the very same wealth redistribution that he had just discredited. So, let’s take another look at labor.
Let’s imagine that Jane, a single mother, wants to stay home with her pre-school-age child, so she tries to make a living by baking cookies, which she offers for sale to local restaurants and coffee shops. Let’s also imagine that you own some popular local coffee shops, and you like Jane’s cookies, and you think that you can sell 100 of the cookies to your customers for $1.50 each, seven days a week, so you offer to buy 100 cookies per day from Jane for 75 cents each. Imagine that Jane asks for $1.00 per cookie instead, and you agree, so she starts showing up every morning with 100 cookies and leaving with a check from you for $100. Now, if Jane doesn’t get any other customers for her cookies, and if the $100 per day from you doesn’t give her enough profit to equate to minimum wage for the time that she spends baking the cookies, are you required to pay Jane a certain “minimum price” per cookie? And for that matter, are you now responsible for making sure that Jane stays healthy (i.e. for making sure that Jane has health insurance)? And must you now keep buying cookies from Jane for as long as Jane wants to sell them to you, even if you or your customers get tired of Jane’s cookies? What if Jane or Jane’s child gets sick, and Jane can’t bake cookies for a month, and during that time, you start buying cupcakes from Betty that your customers like much better than Jane’s cookies — are you obligated to go back to buying Jane’s cookies as soon as Jane feels up to baking again? Or, what if Jane and a bunch of your other suppliers get together and threaten to stop selling you stuff (cookies, coffee, cups, etc.) unless you pay higher prices for all of it — are you obligated to negotiate with them, even if you can easily find new suppliers like Betty who’ll gladly accept the prices that you’ve been paying?
Legally (and I think also morally), the answers to those five questions are: “No,” “No,” “No,” “No,” and “No.” But, if you were buying hours of Jane’s labor (i.e. if you employed Jane to bake cookies in one of your kitchens) instead of buying batches of Jane’s homemade cookies, the legal answer could now be “Yes” to four, and maybe all five, of those questions, depending on your number of employees and the state in which your coffee shops are located. So what’s the difference between buying hours of someone’s labor and buying a physical product, like a cookie, from that person? In other words, why did we ever start making a distinction between an “employee” and an “independent contractor” in the first place? What’s so magical about the purchase of someone’s labor that should make the purchaser (i.e. the employer) responsible, not only for paying the agreed-upon price for the seller’s (i.e. the employee’s) labor, but also for making sure that the purchase price is enough to keep the seller comfortable in life, and also for making sure that the seller stays healthy enough to keep selling the labor, and also for making sure that the seller gets to keep selling the labor despite whatever unfortunate things may happen in the seller’s life outside of work, and also for making sure that the seller gets regular price increases for the labor… . In my opinion, the simple answer is: “Nothing.” As I see it, in 2012, there’s really no sound logical basis for making a legal, or even a moral, distinction between what should be required of a contract (oral or written) to sell hours of labor versus a contract to sell physical goods. It’s called “freedom of contract,” and while it still allows for regulations prohibiting, for example, the exploitation of minors (i.e. child labor laws — children aren’t competent to execute contracts anyway — and contracts for illegal goods/services), when competent adults are involved, it essentially just requires an offer, an acceptance, a mutual understanding of what’s being offered and accepted, and an exchange of value for value (i.e. it’s not a gift from one party to the other, but the parties get to determine the relative values of the things exchanged).
Thus, in my opinion, it’s highly questionable whether we should ever have gone down the “minimum-wage” road in the first place, let alone the Obamacare, “implied-contract” employment (in some states), Family and Medical Leave Act, and National Labor Relations Act roads (making employers responsible for employees’ health care, requiring employers to have “cause” to terminate people’s employments even in the absence of contracts, requiring employers to hold jobs open when employees are prevented from working by difficulties in their lives outside of work, and requiring employers to negotiate with groups of employees who want better employment terms while the employees are free to walk away at any time). Like Jane in the example above, I’m mostly self-employed (except for the one university course that I teach). Who’s responsible for making sure that I make enough money? Who’s responsible for my health care? Who’s responsible for making sure that I have steady work? Who’s responsible for making sure that I have a job to come back to if I have to take time off to deal with a health or personal matter? And who’s responsible for making sure that I get steady raises in my income? The answer to all of the above is: “I am,” and that’s just how I want it, and that’s just how I think it should be. I think we’d be better off as a nation if everyone who’s now an “employee” were an “independent contractor,” freely contracting to sell hours of labor for a fixed (or floating) price, receiving 100% of the agreed-upon price for that labor, and having to write a check to the government for all of the taxes on that income, just like I have to do. Imagine how differently people might think about the need to reform Social Security and Medicare if they actually had to hand their wages over to the government instead of having them automatically deducted before they’re ever even seen. Instead of feeling “lucky” that they “get” to keep the amounts that show up on the faces of their paychecks, people might actually, righteously, be indignant about what was theirs but was preemptively confiscated from them by the government automatically, insidiously dipping its hand into the “employer”/”employee” contract.
Like O’Reilly, I don’t want to see somebody like Jane trying to raise a child on the current minimum wage, nor am I anxious to see anyone, regardless of familial status, earning less than the current minimum wage. I just believe that the free market, not the government, is the best determinant of wage rates, just as it is for the prices of cookies. I also believe that the free market is the best incentive for Americans to take advantage of the myriad of educational and vocational opportunities that this country offers to acquire knowledge and skills that will command “living” wages, by virtue of simple supply and demand for the knowledge and skills (minimum-wage and collective-bargaining requirements are largely remnants of an era in which employers were perceived as having inherent power to exploit uneducated, otherwise-destitute manual laborers who didn’t have nearly the power to increase their value, through education, as today’s workers do, i.e. when our society wasn’t nearly as upwardly-mobile as it is today). If that weren’t true, then why not raise the minimum wage to $100 per hour and just “eliminate poverty”? Imagine the lowest-paid workers in our economy earning $100 per hour. Imagine what a hamburger at McDonald’s, not to mention everything in your local grocery store, would have to cost if everyone involved in producing it made at least $100 an hour? And who’d have it the hardest trying to live in a world of $50 McDonald’s hamburgers? That’s right, the people at the bottom of the wage spectrum — those earning the new “minimum wage” of $100, which would probably still be about twice the cost of one burger, just about like it is now. Not only would their spending power likely not rise, but it’d likely actually drop, because every employer who could possibly outsource jobs to countries outside of the U.S. would have a compelling new incentive to do so (i.e. more of those people would end up trading minimum-wage jobs for no jobs at all).
So, while it may sound good and compassionate and effective to raise the minimum wage as a means of eliminating poverty, the very people who earn it would likely be (and have historically been) hurt the most by that misguided move. And, cutting employers’ income taxes to offset the cost of a minimum-wage increase would simply be another form of that very same wealth-redistribution that both O’Reilly and I believe, and have demonstrated, time after time, to be profoundly counterproductive at both the individual and national levels. Anytime we contemplate the government interfering with the freedom of the labor contract, telling employers whom and/or how much they have to pay for labor, we’re eroding people’s private-property rights, messing with the very foundations both of our economy and of our freedoms in general. Before we ever do that, we need to make absolutely certain that what we’d be getting is worth what we’d be giving up and that what we’d be getting can’t be achieved in a way that preserves freedom. In this case, what we’d be getting in the way of poverty reduction not only isn’t worth any further abridgment of freedom but also can be achieved in a way that preserves and promotes freedom: by individuals making themselves more productive and therefore more valuable, kind of like Jane did (identifying, honing, and marketing her baking skill), so they won’t have to work for minimum wage. (Of course none of the above prevents or discourages any employer from voluntarily paying a “living” wage, as I know Bill does, but if the federal government really wanted to help low-wage-earning citizens, here’s what it could do: Make it much harder for anyone who’s in this county illegally to get jobs and suppress our citizens’ wages, by implementing an employee i.d. program like E-Verify nationwide, with stiff penalties for employers who don’t comply, thus reducing the supply of workers at the low end of the wage spectrum in this country). Sounds like I may need to go back on the Factor soon and straighten Bill out on this one, so stay tuned!