On January 1 the minimum wage in many U.S. states and cities increased. As reported in The New York Times "in 27 of these places the pay floor will reach or exceed $15 an hour."
These pay increases are intended to help low-income people, who obviously could use the help. It is hard to imagine how anyone could live on the current $7.25 federal minimum. But intent is one thing and actual consequences may be quite different. According to standard microeconomics, when labor's price increases the amount employers will buy decreases.
Experts at the Congressional Budget Office recently estimated that increasing the minimum wage to $15 would lift 1.3 million people out of poverty and increase paychecks for 27 million — an excellent result! But they also predicted that the increase would render 1.3 million people jobless, with young people, part-time workers, and those with no education beyond high school disproportionately hurt.
How do we calculate the net benefit of such legislation?
Oddly enough, though, increasing the minimum wage to $15 offer a golden opportunity to lawyers. It invites them to bring class action lawsuits that, while increasing their own incomes, will also help those poor people who otherwise would be getting the short end of the stick.
The lawsuits would be based on the Fifth Amendment's Eminent Domain clause, which says that that "private property" may not "be taken for public use, without just compensation."
Poor people generally have little property in the narrower sense of the term: real estate, stocks, bonds, bank accounts. Their most important possession is therefore their ability to earn a living by working. As Benjamin Franklin famously observed, "He that hath a trade hath an estate."
A minimum wage law which drives someone into unemployment deprives that person of his or her most valuable property.
A minimum wage law which drives someone into unemployment deprives that person of his or her most valuable property. Government may justify this damage on the grounds that it benefits people fortunate enough to retain their jobs, who will be earning more — certainly an important public purpose. But the Fifth Amendment requires government to give "just compensation" to people injured by that law.
"Just compensation" here must do more than replace what people could have earned if they could find a job. Income, although very important, is not the only reward for working. Working is educational. It helps employees learn new skills — leading to better opportunities — and to develop habits and dependability that employers value. A job also reinforces the employee's self-respect and community standing.
The "just compensation" required by the Fifth Amendment therefore will be for government to hire everyone who can't find other work, to pay that person the minimum hourly rate that its own laws require, and to include all legally required fringe benefits.
A democratic government probably wouldn't do this without external pressure, since the taxes to pay for it would be unpopular. But a successful class action on behalf of all unemployed people could force government to choose between guaranteeing jobs for everyone or repealing the popular minimum wage laws.
Lawyers do very well financially when they win class action lawsuits. Even a tiny percentage of the results of this class action would make the lawyers rich. But they would have earned it.
Two major benefits for the general public would result. It would destroy unemployment, thereby increasing everyone's security — no small achievement in a dynamic economy where nobody with a good job today can count on being employed tomorrow.
The public would also benefit from the services performed by the people employed by the government. Unemployment has never rested on a lack of things that need to be done. As President Franklin D. Roosevelt said during the Great Depression, why pay people for doing nothing when there is lot of useful work to be done?
Let it be done!