Minimum wages in a common-law system

1/30/2014 01:15:00 PM
What is this "the minimum wage" people speak of? I see many minimum wages.
The internet is abuz about the minimum wage again. I hear a lot of conservatives complain that we should actually repeal the minimum wage because it decreases employment somewhat--indeed, this is what theory predicts would happen, and also what a slim majority of empirical studies have found, though the empirical evidence is quite mixed. For my part, I think the potential for adverse employment effects is good reason to seek alternative policies to raising the minimum wage, such as a guaranteed basic income policy. However, I think that full-out repeal is also rather fool-hardy. The fact of the matter is that in a common-law system like ours, in the absence of a statutory minimum wage, the courts would continue to enforce a minimum wage standard anyway. This would arise for several reasons.

First, there's the not-so-minor issue of the thirteenth amendment, and the accompanying legislation prohibiting slave labor in the United States. Ultimately situations where workers are being paid next to nothing will find their way in front of judges and juries, whose task it will be to determine whether these constitute employment or slavery. Obviously, the voluntariness of the arrangement is part of the standard used to adjudicate such cases, but it cannot be the only one: indentured servitude is often a voluntary arrangement that is nevertheless regarded as slave labor. Moreover, compulsory labor is not necessarily prohibited--on a daily basis we enter into into legally-binding contracts that compell us to provide labor to our employers. Thus, we are left with a two-part standard: the contract must not only be voluntarily entered into, but must also provide reasonable compensation in exchange for that labor. Thus, whether or not an arrangement is slavery or a valid contract depends on how and how much the worker is getting paid. While the courts would not impose a uniform standard, they would end up imposing various minimum wages for various kinds of labor agreements, based on what a "reasonable" person would voluntarily enter into.

That, of course, gets us to contract law, which itself would impose minimum wage standards even in the absence of the thirteenth amendment. In the jurisprudence, a contract is considered valid if and only if it has both an "offer" and "consideration." The offer in a labor contract is the job description--the offer of employment. "Consideration" is a funky legal term that doesn't quite mean what it sounds like--it actually refers to the compensation for the services rendered, meaning that to be a valid employment contract, there must be a large enough reward for the labor provided that a reasonable person would consider the deal. This is not a particularly stringent criteria--you can get away with paying very little and still pass both parts of this test--but it nevertheless does mean that some kind of minimum wage must be imposed; employment that does not provide tangible benefits of some kind cannot posibly be considered a legally binding contract.

But even looking beyond the legal enforceability of labor arrangements, there are a variety of otherways in which courts and statutes impose de facto minimum wage laws. For example, consider the Department of Education's "gainfull employment rule" which states that to accept student loan funding, universities and colleges must ensure that students acheive "gainfull employment" after graduation, defined as earning enought to successfully repay their student loans. One can, therefore, do the math and determine what minimum wage would be required for a student graduating from a typical college to be able to repay a typical student debt burden. Although the term has become associated with education recently, "gainfull employment" is actually a very old legal standard with a variety of applications. If you want unemployment benefits, social security, or disability, for example, you must prove that you are not gainfully employed, with varying statutory definitions of how much you can earn without counting as employment. Employers must compete with these programs in order to attract workers, which has the economic effect of imposing a minimum wage on these markets. Gainful employment also pops up in court arguments in less obvious ways, such as in tax cases or even child custody cases. There are a variety of ways in which the law discriminates between employed and unemployed individuals, all of them requiring some kind of minimum wage standard.

So let's stop debating whether we should have a minimum wage law. We have many minimum wages, and will continue to regardless of statute. In fact, our most important minimum wage law--the thirteenth amendment--is in the constitution itself.