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Minimum Wage: For the Greater Good?

Here’s a letter to a correspondent from Canada:

Mr. Pierre Taverson

Dear Mr. Taverson:

Thanks for e-mailing.  If I understand your defense of minimum-wage legislation – and your criticism of my opposition to that legislation – you argue that the number of people who gain from the legislation is so large, relative to the number who suffer as a consequence, that the legislation “easily passes the cost benefit test.”

You’re correct that the CBO predicts that a hike in the minimum wage to $10.10 per hour will raise the pay of 16.5 million Americans while it will cause “only” 500,000 people to remain unemployed.  Unlike you, though, I do not believe that this CBO finding justifies raising the minimum wage.

Because you read my blog you know that economists predict that hikes in the minimum wage will not only destroy some jobs but will also have other ill consequences, including for many workers who retain their jobs at the higher minimum wage.  Let’s, though, here ignore these other ill consequences and focus only on the CBO numbers mentioned in your e-mail.

I’ve some questions for you.  Suppose the president of the United States randomly chooses 500,000 of the lowest-skilled workers in America and, with Congressional and Court approval, orders these workers to quit their jobs.  “You must remain unemployed indefinitely,” the president commands these workers.  “My reason for ordering you to enter and to remain in the ranks of the unemployed is that, by removing you from the workforce and thereby artificially reducing the supply of labor, the wages of 16.5 million other low-skilled workers will rise.  So do not despair!  Your sacrifice is for the greater good.  My policy easily passes the cost-benefit test.”

Would you favor such a policy?  If not, why do you support minimum-wage legislation knowing that it will force thousands of low-skilled workers into involuntary unemployment?  While I understand that you can point to differences between a policy of raising the minimum wage and my hypothetical scenario, please explain which of those differences are substantive.  Which of those differences make one policy of forcing a half-million workers into unemployment acceptable while the other policy of achieving the exact same outcome is unacceptable?

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