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Todd Henderson on Minimum-Wage Legislation and Carbon Taxation

Posted By Don Boudreaux On March 18, 2014 @ 2:20 pm In Environment,Seen and Unseen,Taxes,Work | Comments Disabled

University of Chicago law professor Todd Henderson sent me this e-mail, which I share here with his kind permission:

Perhaps you’ve made this connection before, but reading all your posts about the minimum wage and global warming this morning, I was struck by the paradox in the proposed remedies for these two problems by politicians. The first problem is income inequality, and the remedy is to set minimum contract terms. The second problem is externalities from carbon protection, and the remedy is to tax output levels. In both cases, the solution is to raise firm costs. The assumption driving the policy prescription for a Pigovian tax on carbon is the idea that higher costs will spur innovation in ways of reducing carbon output. Of course, that private firms subjected to higher costs will innovate in ways to reduce those costs is precisely the problem with minimum wage legislation, as you point out. This is an obvious point, but my mind never made the connection before.

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