Here’s a letter to a new and very active e-mail correspondent who does not at all like the recent Wall Street Journal article by George Mason Econ’s Liya Palagashvili and Rachel Mace on minimum-wage fallacies:
Mr. Peter Willis
Thanks for your series of e-mails. In the last one you write that you “can’t conceive it possible [that] businesses can’t spare some amount of their profit to pay underpaid workers living wages.”
I disagree. Firms that employ large numbers of low-skilled workers generally operate in highly competitive industries. This competition ensures that there are no pools of excess profits lying about to be given gratis to workers. If you dispute my empirical claim, you should stop reading this letter now and rush out to start your own firm in an industry that you believe enjoys a consistent stream of excess profits. If you’re correct, you’ll profit handsomely even as you pay your low-skilled workers above-market wages. (That you’ll not in fact put your money where your mouth is tells me that you can indeed conceive it possible that businesses have no such excess profits.)
Of course, you might mean instead that firm owners and investors should settle for below-market profit rates in order to pay their workers higher wages. Perhaps. Economics says nothing about how people should spend their money. But before you criticize owners of businesses and other investors for what effectively amounts to their not giving some of their earnings as charity to low-skilled workers in their firms, you should start to give some of your earnings as charity to low-skilled workers in your community. Nothing will stop you from doing so. Nothing prevents you from practicing what you preach so passionately to business owners and investors.
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
I know that some people object to the argument that tells such minimum-wage proponents to put their own money where their mouths are by starting their own businesses. I’ve never understood this objection. We have in such cases people who volunteer that they possess enough detailed knowledge about the current state of business to know that at least some types of businesses are consistently earning excess profits, and that they know this fact with such certainty that they are comfortable in endorsing the use of government coercion based upon their asserted knowledge of business conditions. Such people cannot then legitimately excuse themselves from actually putting their money on the line to start a business; such people cannot, by refusing to start their own firms, be allowed to get away with this cop-out by pleading that they are innocent of the knowledge, skills, and experience that it takes to successfully start and operate a business.