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Waging War Against the Minimum Wage

Posted By Don Boudreaux On February 25, 2013 @ 3:24 pm In Reality Is Not Optional,Work | Comments Disabled

My mysterious e-mail correspondent Aaron the Aaron sends me a link to this post at a blog that I’d not before heard of [1].  Mr. Aaron writes in his e-mail to me merely “What say you?”

I say the following.

1) My objection to arguments based on the premise that a higher legislated minimum-wage does not reduce the employment options of low-skilled workers (where “employment options” include not only the number of hours of paid work that employers wish to hire low-skilled workers to perform, but also the quality of such work, and the value of fringe benefits available to such workers) does indeed, in part, reflect my consternation that politicians, pundits, and professors so cavalierly experiment with the lives and careers of low-skilled workers.  When such experimentation directly reduces the range of bargaining options open to such workers, the reasons for such a forced reduction should be very solidly based.  More is needed than some empirical studies that fail to find negative employment effects of raising the minimum wage.  More is needed not only because other empirical studies – e.g, this one [2] – reach contrary results, but also, and more importantly, because the theory that a modestly higher minimum wage does not inflict harm on its intended beneficiaries is so deeply at odds with foundational economic theory.

The proposition that, ceteris paribus, the more costly it becomes to acquire some good or service the fewer will be the number of units, per period of time, of that good or service that people wish to acquire is not an ancillary or secondary proposition in economics.  It’s foundational.  So when someone argues that this proposition doesn’t hold for good X or service L, the burden of persuasion is on that someone to make a compelling case for such a startling proposition.  And it is a heavy burden.

The percentage of empirical studies that can be interpreted as showing that a forced increase in the cost of hiring workers does not reduce the quantity demanded of such workers (or, more generally, does not prompt employers to adjust in ways that diminish the employment options of low-skilled workers) is hardly high enough to compel economists to say, “Yes indeed.  Low-skilled human labor does indeed appear, at least over some range of costs, to be exempt from the law of demand.”  And yet economists who support raising the minimum wage – knowing full well that if the law of demand is never suspended for low-skilled labor that a higher minimum wage will indeed harm such workers generally – nevertheless rush on the basis of relatively flimsy evidence to support a policy that threatens harm to low-skilled workers.

The evidence against the so-called “new economics” of the minimum wage is indeed flimsy – so flimsy that for an economist today to endorse policy based on its validity is for that economist to abandon, to insult, science.

The reason this evidence is flimsy is that empirical evidence in favor of a proposition that is at odds with the foundational premises of a science must be overwhelming before that evidence is accepted as being scientifically valid.  Would anyone honestly argue that the empirical evidence in favor of the proposition that legislatively raising ‘modestly’ the minimum wage does not reduce the employment options open to low-skilled workers is overwhelming?  Such evidence, at least as of now, doesn’t remotely come close to being solid, much less overwhelming.

2) About this business that the minimum wage, being so low that it affects only a small handful of workers, is too modest or low to get all agitated about: suppose Congress imposes an annual head-tax of $1.00 on every American.  Congress then keeps, say, 10 percent of the proceeds for itself to cover the administrative costs of this tax, while it gives the remaining 90 percent of the tax proceeds to me.  As a result of this small tax, my annual income would rise by roughly $280 million.  Is this tax a good policy?

Its measurable effects would be zilch.  Indeed, even for a poor American family of four or five, the ‘felt’ effects of such a tax – an extra tax bill each year of $4.00 or $5.00 – would be hardly noticeable.

Yet no one, I trust, would use these undeniable facts about this tax to assert that this tax is good, or even acceptable, policy.  Likewise, someone who points out that the tax imposes unwarranted costs on millions of people for no good purpose surely would not be ridiculed simply because these costs are small – too small to be detected by even the fanciest econometric techniques.  No graph showing the smallness of the tax would, or should, persuade those who complain about the immorality of the tax to stop complaining.

So, yes, I storm against minimum-wage legislation because, as the evidence and argument now stand, sound judgment consistent with foundational economics reveals that policy to be both bad economics and harmful policy.

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[1] link to this post at a blog that I’d not before heard of: http://squarelyrooted.wordpress.com/2013/02/25/the-minimum-wage-just-isnt-very-large-and-no-proposed-hike-changes-that/

[2] this one: http://blog.supplysideliberal.com/post/43980516189/jonathan-meer-and-jeremy-west-effects-of-the-minimum

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