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Free Markets, Not Minimum Wage Laws, Raise Salaries

Updated: Apr 13

We’ve recently seen efforts across the country to raise the minimum wage. Arkansas’s minimum wage will be raised to $8.50 in 2017. The city of Seattle even went so far as to raise its minimum wage to $15 an hour. But advocates for a higher minimum wage misunderstand what actually moves wages up: it’s the law of supply and demand, not government intervention. Take Wal-Mart, for example, which recently announced it would be giving sizeable pay increases to thousands of its workers. From Talk Business:

Wal-Mart Stores said Wednesday that 16,257 of its employees in Arkansas will receive a pay raise beginning with the April 4 pay period. The increase, part of the $1 billion pay and benefit raise the company announced Feb. 19, ensures that all employee pay is at least $9 per hour. CEO Doug McMillon said in the February announcement that pay would rise to $9 an hour in April and $10 an hour by February 2016. Wal-Mart spokesman Scott Markley said approximately 500,000 U.S. employees will receive raises beginning with the April pay period. Wal-Mart is also raising the average pay of department managers to $13 per hour and up to $15 by the following year. The plan includes providing workers more opportunities for training flexibility over their own schedules. The information shared Wednesday by Wal-Mart noted that Arkansas employees will earn at least $1.75 above the federal minimum wage and $1.50 above Arkansas’ minimum wage. Federal minimum wage is $7.25 an hour. Arkansas’ minimum is $7.50, but will be $8 in Jan. 1, 2016, and rise to $8.50 on Jan. 1, 2017.

In recent years, Wal-Mart unfortunately hasn’t always been an advocate of free markets. They’ve lobbied for cronyistic policies like the Obamacare employer mandate and against cuts to entitlements like food stamps; we hope it’s only a coincidence that such advocacy has the side effect of hindering their competition and artificially propping up their profits. However, their recent announcement that they’ll be giving raises to employees significantly above minimum wage levels is a good example of how the free market, absent government control, can raise workers’ wages. Put simply, Wal-Mart didn’t raise wages because the government told them to. This pay increase from Wal-Mart came about due to private competition between companies for workers. Wal-Mart needed to raise wages to be able to keep their workers from leaving for better-paying jobs. As an Investor’s Business Daily editorial put it in February:

The retail giant should be Exhibit A in the argument against imposing a one-size-fits-all minimum wage straitjacket on the U.S. economy. It’s raising wages for workers not because it wants to be nice, but because the market for people who can do Wal-Mart jobs has tightened in recent years as modest job growth has been restored to the economy. The reason for this? In a word, competition. “Competition helps everyone get the best deal,” wrote Mitchell Tu at the Heritage Foundation’s Daily Signal blog. “Consumers flock to Wal-Mart because it offers products at competitive prices; investors buy Wal-Mart stock because it earns competitive profits; and workers will apply for jobs at Wal-Mart because it pays competitive wages.” Exactly. Competition is the greatest force for good in a market economy. It keeps everyone honest. Only when government interferes with fair markets do outcomes get skewed. Now that Wal-Mart’s wages are going up, can Target and others be far behind? By contrast, when federal or state government requires businesses to pay a “minimum wage,” it destroys jobs and removes from the job market minorities and unskilled young people most in need of work experience and training. Since Wal-Mart announced its pay increases for employees, other companies like Target have also responded by giving their workers a raise above minimum wage levels.

Progressives might have people believe that evil CEOs get into a smoke-filled room every year and try to figure out sinister ways to keep wages low, but that’s just not the case. Business owners know that to attract qualified workers, they have to keep wages competitive. They don’t need local, state, and federal governments to help them do this. That’s why competition and free enterprise are the best solution to raising wages, not government intervention and minimum wage laws.

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