The always-thoughtful Charley Hooper sent this question to me by e-mail. I share it here, in full and unedited, with Charley’s kind permission.
Dear Don,
Here’s a question for people who think the law of demand applies to everything except for the hours worked by low-skilled workers.
Imagine that there’s some negative externality or some direct harm connected with the hours worked by low-skilled workers. Perhaps there are extra carbon emissions or perhaps the hours they work lead these workers to consume more high-calorie foods, leading to obesity. Perhaps the jobs these people perform drive them to consume illicit drugs. Now, if you wanted to reduce the number of hours worked by low-skilled workers, what would you do?
Would you tax this labor, like a tax on petroleum and sugary drinks? If so, then please explain how the effect of the tax would be different from the effect of a mandated minimum wage?
Regards,
– Charley
Let me anticipate a likely response by some economists who support minimum-wage legislation – a response that insists that they (these economists) never deny that the law of demand applies to low-skilled workers. These economists say, instead, that their case for the minimum wage is that this wage is meant either to correct for the effects of monopsony in the market for low-skilled workers or is meant to prompt workers to work so much harder that these workers become worth the value of their higher wages.
These two arguments – monopsony and ‘efficiency wage’ – are the only two economic arguments in support of the claim that minimum wages destroy no jobs that are even remotely theoretically possible. Every other seemingly ‘economic’ argument offered (almost always by non-economists) for minimum wages – such as, higher minimum wages increase aggregate demand so much that minimum wages pay for themselves – is so at odds with economic theory that virtually no economists, not even pro-minimum-wage economists, take such arguments seriously.
Of course, many things are remotely theoretically possible that are also, in reality, too implausible to take seriously. And so it is with claims of monopsony power in American markets for low-skilled workers and of widespread available profits from higher ‘efficiency wages.’
I say, again, to anyone who asserts that monopsony power or ‘efficiency-wage’ effects justify minimum-wage legislation that no one should take your policy recommendations seriously unless and until you yourselves put your own money where your speculations are. If you are (which is likely) too incompetent, ill-informed, and inexperienced to organize actual, productive business enterprises of your own, try to sell your advice to the many profit-hungry competent and experienced business people out there who constantly are on the look-out for a competitive edge. If you can’t persuade any of them to act on your advice, then hold your tongue. Don’t persist in trying to marshal state force in support of policies that you are unwilling to back by putting your own skin in the game and that will do no harm only if your far-fetched speculations are correct.
More generally, even though economists seldom argue in favor of the minimum wage as if low-skilled workers are exempt from the law of demand, the vast bulk of public commentary – by politicians, pundits, priests, and “activists” – clearly is premised on the belief that low-skilled workers are exempt from the law of demand. Competent economists and other knowledgeable people should address these mistaken beliefs held by non-economist proponents of minimum wages.
