Don’t Mistake the Minimum Wage for the Fair Wage

It Is Problematic for the Minimum Wage to Be Turned into a “Desired Wage”

The minimum wage system is problematic because it is reducing jobs and shrinking the income of vulnerable groups. As the government has recklessly raised the minimum wage by about 30% over the past two years, self-employed business owners and small merchants have been cutting staff or shutting down, and workers have been losing their jobs.

Wages should be determined through voluntary contracts between employers and workers in order to be reasonable, sustainable, and conducive to a healthy economic ecosystem. But because politicians do not bear the burden themselves, they have been handing out populist pledges and acting generous by promising higher minimum wages. In doing so, they have set the minimum wage politically, while ignoring individual workers’ productivity and the characteristics of workplaces and regions. As a result, the minimum wage has been set at an excessively high level, detached from reality.

The 2019 minimum wage is 8,350 won per hour, or about 1.75 million won per month. Because this is a wage mandated by law, violations are punishable by up to three years in prison or a fine of up to 20 million won. Yet despite such severe penalties, many businesses are in no position to comply. As many as 30–40% of workers at small, struggling workplaces are subject to the minimum wage. Creating a law that ordinary people cannot realistically follow and that causes hardship for both employers and workers shows that this law is being operated improperly.

The minimum wage should, quite literally, be set at a “minimum level.” It is a law that says people must neither work for less than that wage nor hire anyone for less than that amount. It infringes on freedom of contract and restricts individuals’ basic rights. Because it is a law that prevents people from working even if they want to work, and forbids employers from hiring even if they want to hire, only a small minority of workers should fall under it for the minimum wage to be considered appropriate for that economy’s level of development.

Running the system only for the sake of those who receive higher wages because of minimum wage increases is a form of confirmation bias—seeing only what one wants to see. If one considers those who were deprived of the opportunity to work at the minimum wage, or those who gave up their businesses because of it, then it is wrong to think that a higher minimum wage is always better.

The political sphere and organized labor are now mistaking the minimum wage for a “proper living wage.” They are advocating a “desired wage,” insisting that workers ought to receive at least that much. Everyone wants to earn more. But it is wrong to try to raise the minimum wage to that extent if doing so takes away other people’s job opportunities and forces businesses to give up.

If some people are struggling because their wages are too low, then a reasonable welfare policy would be for the government to designate them as recipients of basic livelihood security and supplement their insufficient income. Forcing companies to guarantee a proper standard of living through wages is to wrongly regard businesses as “welfare institutions.”

The most desirable course is to abolish the Minimum Wage Act. Rather than having the state decide wages in place of the market, the best approach is to let them be determined in the market through voluntary private contracts. The government must remember that prohibiting free contracts only makes people’s lives even more difficult.

Sung-no Choi

President, Center for Free Enterprise (CFE)

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Original title: 최저임금을 적정임금으로 착각하지 마라

Author: Sung-no Choi

Date: 2019-07-10

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=24&idx=20320