Why the Poor Should Hate the Minimum Wage

You sit here in your cushy chair in Europe…let’s take the Chinese for example…And you want to tell me that two bucks a day is not a dramatic improvement in their life?’ Yaron Brook said in response to a question.

It is. And there’s no way for them to get to that point to be as rich as you are unless they go through that phase. And if you deny them the ability to make 2 bucks a day, by charring 4, or by insisting that companies pay 4, then they’ll [companies] withdraw completely from the market,’ Yaron added.

Of late I’ve been watching a whole lot of political debates, just like the one above.

Maybe it’s because the Aussie federal election is coming up. Or maybe it’s because we just had the Labor Victorian landslide win.

A lot of these videos, I’m ashamed to say, are just sound bites. Two sides making character attacks at one another.

They’re fun to listen to at first. But the entertainment factor wares off pretty quickly.

The talk above, between Yaron and university students in the UK, got me thinking.

Minimum wage laws are terribly restrictive, I get that.

But what about those low paying jobs that provide little to no learning of skills? What about all the Uber jobs out there?

The Uber generation

I like Gen Uber over Gen Y. It’s got a better ring to it, no?

Uber is probably the first name you think of when I mention ridesharing. And the company is in the news again. (Not for the right reasons.)

Uber finds themselves in court.

This time it was to change a ruling made in 2016. Courts in the UK decided to identify Uber drivers as workers rather than self-employed contractors.

Such a distinction would mean Uber might have to pay drivers the national minimum wage. And that’s exactly what they don’t want to do.

In a recent report, researchers found some Uber drivers were making less than minimum wage among transport workers.

The ABC reported:

The union-backed Australia Institute’s Centre for Future Work has calculated that the average income for ridesharing service’s drivers working in six Australian cities is less than $15 an hour. This compares with about $30 an hour for casual drivers working under the relevant statuary award.

And as you can see (below) pundits whine about the same thing in the US:


MoneyMorning 30-11-18

Source: Bloomberg

[Click to open in a new window]

A study by the Massachusetts Institute of Technology’s Center for Energy and Environmental Policy Research made a splash the other day when it claimed that the median pay of an Uber or Lyft driver in the U.S. is only $3.37 an hour before taxes — less than half the federal minimum wage of $7.25. That dismal number seemed to confirm many people’s fears that the gig economy impoverishes workers,’ Bloomberg writes.

Yet I wasn’t aware that Uber or any other company had an obligation to pay what workers feel is right. I didn’t know these drivers couldn’t get a better paying job by applying themselves.

I believe Uber, and any other business, should be allowed to pay workers whatever they want. And if that’s a wage below the minimum then so be it.

They just won’t get many job applicants for the position.

Yet I can’t disagree with the sign above. 

Uber does equal poverty for drivers. And it keeps them poor.

You know what else keeps the poor, poor? Minimum wage laws.

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Your rights are not greater than mine

Just like every other commodity, demand for labour rises and falls depending on price.

If labour costs more, employers demand less of it. This is exactly what happens when you enforce minimum wages.

Demand for labour drops. There’s an oversupply of employees and employers hire those with education and experience.

Who gets left out?

Those without education and experience, which generally tend to be the poor.

So rather than giving the poor a decent standard of living, minimum wages push them out of the labour market. And it keeps them out.

With no regulations on pay, employees can undercut each other.

If you’re not willing to work for less than $18 then an employer will find someone who will for $9.

In a world of no minimum wage laws, the poor can get jobs. They can gain experience. And they can use their newly learned skills to move up in the labour market.

This is one of the reasons why I believe Uber keeps the poor poor.

What skills do you gain from driving people around? How can you use experience as an Uber driver to get a better paying job?

What poor people work for is not a wage…not initially, at least.

They’re working for experience. All they need is a foot in the door so they can move up in the labour market, earning a higher wage over time.

But if you demand employers pay $18.29 an hour (Australia’s current minimum wage) the poor might never move up.

Your free market friend,

Harje Ronngard,
Editor, Money Morning


Harje Ronngard is the lead Editor at Money Morning. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. There are two questions Harje likes to ask of any investment. What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Money Morning readers 5 days a week.. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home among Matt’s incredibly exciting income plays.


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