Answer Me This About Mandated Minimum Wages

by Don Boudreaux on July 15, 2013

in Prices, Reality Is Not Optional, Seen and Unseen, Wal-Mart, Work

Here’s a letter to WTOP Radio:

You quote minimum-wage supporters who assert that hiking that wage will raise the pay of low-skilled workers if the legislation targets “industries that can afford to increase wages” (“Wal-Mart faceoff with DC fuels minimum wage debate,” July 15).

You should ask these minimum-wage supporters the following questions: “If government enacts legislation setting the minimum price that people can pay for a new car at $50,000, do you – you confident supporters of government-mandated minimum prices – believe that this legislation will result in people paying $50,000 for the likes of Toyota Corollas and Ford Fiestas?  Or do you realize that if government obliges car buyers to pay at least $50,000 for a new vehicle, these buyers will choose to buy no low-end cars and opt (if they buy a new car at all) instead to purchase a new BMW, Lexus, or other luxury model?”

And here’s a follow-up question that you should ask: “Do your answers to the above questions change if the minimum-car-price legislation applies only to high-income people?  That is, do you think that merely because an attorney or surgeon earns, say, an annual salary of one million dollars – and, hence, can “afford” to pay $50,000 for a Corolla or Fiesta – that that wealthy car buyer will be prompted by minimum-car-price legislation to fork out $50,000 for the likes of a Corolla or Fiesta, especially given that he or she can buy the likes of a BMW or Lexus for the same money?”

Unless you find a minimum-wage supporter who can plausibly explain why a legislated minimum price for cars will not reduce the income earned by sellers of low-end cars, you should be more skeptical of the analytical abilities of those who insist that a legislated minimum wage will not reduce the income earned by sellers of low-skilled labor.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

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