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Minimum Wage, Maximum Folly – Again

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Scott Sumner understandably wonders why exceedingly high rates of youth unemployment in economies with minimum-wage statutes are seldom explained as being at least in part a consequence of minimum-wage statutes, despite empirical evidence consistent with this explanation [2].

Pres. Obama insists that raising the hourly U.S. national minimum wage by 39.3 percent – from its current $7.25 to $10.10 by July 2016 – will have (as described by two members of Mr. Obama’s Council of Economic Advisors, Jason Furman and Betsey Stevenson [3]) “little or no negative effect on employment.”  Furman and Stevenson and the Administration dispute the Congressional Budget Office’s findings [4] that this proposed hike in the minimum wage will put hundreds of thousands of low-skilled workers out of jobs.  So here’s a challenge that I (and others) have posed before but believe to be sufficiently penetrating to pose again.  This challenge, of course, is posed to supporters of this hike in the minimum wage: Name some other goods or services for which a government-mandated price hike of 39.3 percent will not cause fewer units of those goods and services to be purchased.  Indeed, name even just one such good or service.

If the challengees want to get picky, let’s factor out likely inflation over the next few years.  Let’s call the real hike in the minimum wage, not 39.3 percent but, say, 30 percent.  Oh heck, let’s assume that inflation will be higher than it will likely be over the next three years.  Let’s call the real hike in the minimum wage “only” 25 percent.  So I amend slightly my challenge: Name some other goods or services for which a government-mandated price hike of 25 percent will not cause fewer units of those goods and services to be purchased.

Beer?  Broccoli?  Bulldozers?  Coffee?  Haircuts?  Natural gas?  Automobiles?  Housing?  Preventive health-care?  Lawn-care service?  Tickets to the movies?  Smart phones?  Subscriptions to the New York Times?  Books by Paul Krugman?  Professors of sociology?  Assistant professors of economics?  Any of these products work for you?  If none of these work, surely you can name at least one other for which a 25-percent price hike will not cause fewer units of that product to be purchased.  Or does low-skilled labor just happen to be the one good or service in the entire world for which a government-mandated 25-percent rise in the price that its buyers must pay for it will not diminish buyers’ willingness to buy it?

Seriously, name just one other good or service for which you believe that a government-mandated price-hike of  25 percent will not reduce the quantity demanded of that good or service.

Oh, and because if Mr. Obama’s full proposal is enacted the national minimum wage will also from here on in be indexed to inflation, here’s another challenge to anyone who dismisses as unscientific or ideological the standard economic argument against the minimum wage: name one other good or service whose real price, according to economic theory, should never fall relative to the prices of other goods or services?

This cartoon by the great Henry Payne seems smack-on correct to me [5].

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