Market Driven Minimum Wage

I believe the market should determine the level of employee compensation. An employer is interested in hiring an employee at the lowest possible cost. Conversely, the employee is interested in obtaining employment at the highest possible wage. This conflict results in an equilibrium wage being paid to employees by employers. Basically, the scales would balance.

Consider the manager of a fast food restaurant. In the absence of a minimum wage policy established by the government, the manager could offer workers any amount he or she sees fit. Let’s assume the manager offers $4.00 per hour to workers in a market where the average hourly wage was $5.00 per hour. He may be able to fully staff his restaurant, but his employees would likely resign their positions at the first opportunity of new employment for better pay. This high level of employee turnover would have a tremendous negative impact on his business. He would soon be forced to pay a higher wage in order to retain workers. Therefore, all fast food restaurants in a given market would essentially be forced pay the same basic wage.

The market would ensure the employees are treated with fairness and honesty because for the manager, turnover means money. The market would also satisfy distributive justice concerns. Fast food managers would be paying the same basic wage determined by the market they’re in. This would also apply to leadership positions within the restaurants, like assistant manager or shift leader. The manager who is interested in expanding or simply having a day off will need to delegate some managerial responsibility. To do so, he would train one or more of his employees to perform those duties. In order to keep these middle managers, the manager would be forced to pay a competitive wage. Should he fail to do so, his workers would likely take their new training and find employment elsewhere. In this respect, equals would be treated as equals both within the organization and across the given market.

I believe the market should determine the wage-rate for employees. Absent a minimum wage law, the market is a powerful driver and the laws of supply and demand will always result in equilibrium. This balanced scale would ensure the inviolate principle of distributive justice and encourage ordinary decency across the market. Managers who pay a fair market wage will, therefore contribute to maximizing long-term owner value.