Politicians Are Well Aware of the Harms of the Minimum Wage

Politicians Are Well Aware of the Harms of the Minimum Wage

Recently, I came across a rather interesting news report. Republican lawmakers in the US are proposing that the minimum salary firms must pay to their foreign workers, arriving on H1-B visas, be raised from $60,000 to $90,000. This move was backed by large corporations such as Facebook, Microsoft, and Oracle as well as by unions.

Edging Out the Competition

Why are unions and large corporations supporting this measure? Did American workers suddenly decide to show solidarity with their Asian brethren? Did the CEOs of Microsoft, Facebook, and other large corporations deeply introspect and decide to be compassionate towards the less fortunate foreign workers?

Not at all. Large corporations such as Microsoft and Facebook would like to get rid of competition. Their smaller competitors cannot afford to pay the kind of enormous salaries that Microsoft and Facebook do. Therefore, they hire cheaper workers from India. It is also a good deal for the Indian software engineers since even small firms in the US tend to pay better than firms in Bangalore.

By raising the minimum salary requirement, Microsoft, Facebook, and others wish to raise the labor costs of their competitors. While labor would also become more expensive for large corporations, they can absorb the cost, and the benefit of eliminating competition more than makes up for it.

The unions, of course, have a similar incentive. If workers from India and China are not competing with them, they get to demand higher salaries. And politicians understand all of this. In fact, the explicit aim of this legislation is to keep down the number of foreign workers. From the news report itself:

A California congressman, backed by U.S. technology companies, is pushing for the House to consider legislation that would narrow the number of eligible candidates for H-1B visas that are awarded to highly skilled foreign workers.  

Stop Feigning Ignorance

It isn’t as though only Republicans understand the ill effects of the minimum wage. The Democrats are opposing this move, saying that it should be viewed in the larger context of immigration. Clearly, politicians across party lines understand that minimum wage laws create unemployment and, in this case, immigration obstacles.

To all politicians who advocate raising the minimum wage saying that it helps workers, I have a question. Why is it that minimum wage laws do not create unemployment for fast food workers but do so for immigrant workers from India? I won’t hold my breath waiting for an answer.

The plain fact is that minimum wage laws, whether for fast food workers or for migrant ones, are just crony capitalism. I know it, politicians know it, and after reading this article, hopefully everyone knows it.


Jairaj Devadiga


Jairaj Devadiga is an economist who illustrates the importance of property rights and freedom through some interesting real-world cases. When he is not doing research, he enjoys reading about medicine, astronomy, computers, and law among other things. Readers may email him at jairajdevadiga@gmail.com with questions, suggestions, feedback etc.

This article was originally published on FEE.org. Read the original article.