McDonald’s Minimum: Rising Above Politics

by David Flemming

In the Minimum Wage Study Committee’s hearing last week, Senator Ann Cummings (D-Washington) expressed a simple yet profound insight. As she was driving through New Hampshire, which uses the federal minimum wage of $7.25, she noted how “No one can get anyone to work for the federal minimum wage (in New Hampshire). Every McDonald’s was advertising $10 an hour…there are other factors going on (than just the minimum wage).”

Much of the debate surrounding the $15 minimum wage centers around the notion that employers will pay low-skill workers as little as law will let them, therefore government must act. However, as Senator Cumming’s anecdote from New Hampshire reveals, sometimes a government edict is completely unnecessary for raising wages. What employees really need is a vibrant economic environment that increases demand for their labor.

When labor is in short supply, employers must compete for workers by increasing what they are willing to pay employees. Otherwise, employees will leave employers like McDonald’s for better paying opportunities, resulting in short-staffed restaurants that are less profitable. It is in an employer’s self-interest to pay employees higher wages even if legally an employer could theoretically pay employees less.

Vermont politicians often assume that a government-employee alliance around the minimum wage is needed to counterbalance the market forces that will perpetually side with employers. As this story from New Hampshire shows however, market forces can just as often side with the employee. If Vermont fails to raise the minimum wage to $15 minimum wage, this will not doom employees to working for the legal minimum. Rather, it will allow employers and employees to gravitate toward a wage that is mutually beneficial and economically healthy.

This is important because there is, of course, another side to this coin. If employees (or the government on their behalf) demand more than the market will bear, an employer does not have to pay the employee anything. The real minimum wage is and always will be zero. Let’s hope that’s a lesson New Hampshire politicians don’t learn from driving through Vermont.

David Flemming is a policy analyst for the Ethan Allen Institute

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The Ethan Allen Institute is Vermont’s free-market public policy research and education organization. Founded in 1993, we are one of fifty-plus similar but independent state-level, public policy organizations around the country which exchange ideas and information through the State Policy Network.

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