Economists for Fair Wages – i.e., Wages Set by Markets

by Don Boudreaux on July 22, 2013

in Reality Is Not Optional, Regulation, Seen and Unseen, Work

Jim Dorn received the same mass e-mail that I received on Friday.

Here’s my reply – alas, much less eloquent and persuasive than Jim’s reaction – to the sender of that e-mail:

Mr. Bob Keener, Business For a Fair Minimum Wage

Dear Mr. Keener:

Thanks for your July 19th e-mail featuring quotations from business owners endorsing a higher minimum wage.  Five of the six quoted owners boast that their companies thrive by paying none of their workers wages as low as the current federal minimum.

While I don’t question these executives’ motives, I do question their business acumen.  They apparently fail to understand that a business model that works for them might not work for all other firms.  If, say, world-class chefs Alice Waters and Charlie Trotter testify – correctly – that their restaurants thrive because they charge high prices, this fact would hardly justify substantial price hikes by the likes of McDonalds and Jack In the Box.

Indeed, just as a government-mandated minimum price for restaurant meals would bankrupt many fast-food restaurants – and, in the process, increase consumer demand for meals in some higher-end restaurants that already charge prices as high as the new government-mandated minimum – so, too, would a higher minimum wage make the least-skilled workers unemployable and, in the process, increase employer demand for some higher-skilled workers who already earn wages as high as the new government-mandated minimum.

Businesses (such as those whose owners you quote) that thrive by employing relatively high-productivity and-high-wage workers stand to benefit artificially if their competitors who thrive by employing more low-productivity-and-low-wage workers are hamstrung by a higher mandated minimum wage.

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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