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Economists for People Putting Their Own Money Where Their Mouths Are

Posted By Don Boudreaux On July 23, 2012 @ 6:27 pm In Hubris and humility,Prices,Reality Is Not Optional,Regulation,Work | Comments Disabled

Here’s a letter to someone with an organization named “Business for Shared Prosperity [1]“:

Mr. Bob Keener
Business for Shared Prosperity

Dear Mr. Keener:

Thanks for your e-mail asking me to support your group’s call for raising the legislated minimum-wage.  I must, however, decline because I do not believe that the wage rate agreed to by each employer and each employee is my, or your, or the government’s business.  Terms of employment are a private matter between consenting adults and should be treated as such.

But why don’t you – as, presumably, the owner of your own business – raise the wages that you pay to your employees?  You’re perfectly free to do so.

You’ll reply that such arbitrary increases in wages by individual employers put firms that so raise their wages at a competitive disadvantage relative to firms that don’t raise their wages.  That is, you understand that there’s a cost to arbitrarily raising wages – and it is a cost that you seek to shove off of yourself and onto others by having government oblige all firms to pay a higher minimum-wage.

Why, though, should I endorse a policy that shifts much of cost of arbitrarily raised wages from you to other people?  A rise in the legislated minimum-wage will oblige your customers to pay higher prices (given that firms will be unable to gain competitive advantages by hiring workers at wages below the minimum).  A big chunk of the cost of such an arbitrary hike in wages, therefore, will be shifted by legislation from you to consumers.  Worse, to the extent that such cost-shifting is avoided, a higher minimum-wage will likely condemn many low-skilled workers to the hell of longer periods of unemployment [2].

Yet nowhere in your call for a higher minimum-wage do you mention even the possibility of these ill consequences.  If you are unaware of these ill consequences, shame on you for recklessly calling, in so uninformed a fashion, for a higher minimum-wage.  If, instead, you are aware of these ill consequences, shame on even more for endorsing a policy knowing that its costs will be borne largely by people other than yourself and your fellow business owners.

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA  22030

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URLs in this post:

[1] Business for Shared Prosperity: http://www.businessforsharedprosperity.org/

[2] a higher minimum-wage will likely condemn many low-skilled workers to the hell of longer periods of unemployment: http://www.cato.org/publications/policy-analysis/negative-effects-minimum-wage-laws

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