≡ Menu

A Grade of “F” in Economics

Here’s a letter to the Washington, DC, news-radio station WTOP:

To open his report on DC councilman Tommy Wells’s call to raise the District’s minimum wage, John Aaron misleadingly asked “Are higher wages coming to D.C.?”  This question mistakenly implies that wages can be raised by legislative fiat.  They cannot.  While a higher minimum wage will push the wages of some workers up, it will cause the wages of other workers to fall to zero.  The reason is that a higher minimum wage prices the lowest-skilled workers out of jobs.

Suppose Mr. Wells – wishing to help weaker college students get better credentials to make them more attractive to future employers – proposed to raise the grades of all college students in the District with legislation that prohibits colleges from assigning course grades lower than B.  If universities such as Georgetown and American wish to retain their reputations for giving honest grades – that is, grades that accurately reflect each student’s performance – these schools will adjust to the legislation by no longer admitting weaker students.  Only the best of the best will be admitted; weaker students will be denied admission.

Of course, such legislation will cause reported grades to rise (because grades lower than B will be illegal).  But it would be wrong to conclude that such legislation actually improves overall student performance and helps weaker students get good jobs after college.  Just as legislated minimum grades do not turn C students into A or B students, legislated minimum wages do not raise the pay of low-skilled workers who cannot produce enough per hour to justify their employment at the higher minimum wage.  Minimum-wage legislation causes such workers to be denied admission to the job market.

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