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Opposition to Minimum-Wage Legislation Requires Value Judgments (And So Does Support for Such Legislation)

Commenting on this post, Peter Maxted argues that economists (such as myself) who repeatedly point out that minimum-wage legislation reduces the employment options of low-skilled workers miss the point.  If I grasp his point adequately, Mr. Maxted insists that the relevant policy question is one of costs compared to benefits: do the costs of minimum-wage legislation outweigh the benefits?  Pointing out that minimum-wage legislation has costs is an insufficient basis for concluding that minimum-wage legislation is undesirable.  He’s correct.  Yet the reality that the downsides of policy Z must always be compared with upsides of policy Z does not, contrary to Mr. Maxted’s implication, mean that the basic economic argument used to make a case against minimum-wage legislation does not supply very sturdy grounds for opposing such legislation.

I posted, in the comments section of that post, a longish response to Mr. Maxted’s comment.  I’ll not repeat here what I said there.  Instead, here I offer a draft of the sort of public speech that a pro-minimum-wage politician or pundit would give if he or she were true to the scientific spirit urged by Mr. Maxted:

Fellow Americans,

I propose that the minimum-wage be raised.  A higher minimum wage will cause some low-skilled workers’ wages to rise; therefore, many of these workers’ annual incomes will rise.  And who can object to that happy outcome?!

But you must know, fellow Americans, that this hike in the minimum wage will also likely cause some other low-skilled workers to lose their jobs, and yet others who would otherwise have found employment at the lower wage to not find employment.  These workers will remain unemployed indefinitely.  We don’t know who these unfortunate workers are; they will not know who they are.  Yet the logic of economics assures us that they will almost certainly exist.

So you must beware of those politicians and pundits who endorse a higher minimum wage as if it will unambiguously help all low-skilled, low-paid workers.  You must be on guard against the constant over-selling of this policy, often as if it were cost-free – such as when (to pick just one example from among multitudes) President Obama said last month, “[w]hen … you raise the minimum wage, you give a bigger chance to folks who are climbing the ladder, working hard….  And the whole economy does better, including businesses.”

Such claims, which are standard fare among those of us who press for raising the minimum wage, are unscientific; they’re based either on no, or on faulty, economic reasoning.  Such claims promise a free lunch, or at least a lunch that is free to all low-skilled workers.

Be aware also that the distribution of the benefits of minimum-wage legislation are likely not to be in favor of the workers who are most in need of higher wages.  Obliged to pay higher wages for workers to fill entry-level jobs, employers will have a surplus of workers to choose from.  The workers who will get and keep jobs at the higher minimum wage will disproportionately be workers who are least in need of this artificial privilege.  These workers will mostly be white, well-educated teens from well-to-do neighborhoods; the workers who will be the ones who are cast indefinitely into the ranks of the unemployed – whose hourly pay will fall to $0.00 – will disproportionately be minority teens and young adults from the inner city, as well as immigrants: people whose level of education, whose command of English, whose social connections are not as high or as strong as those of teenagers from high-income families living in places such as Fairfax County, VA, Montgomery County, MD, Bergen County, NJ, or Westchester County, NY.

So understand, as you join me in supporting a higher minimum wage, that the beneficiaries will disproportionately be people who are least in need of special privileges, while the people who bear the burden of the costs of the higher minimum wage will disproportionately be those who are most in need of employment even at wages lower than the legislated minimum.

Note also that even those workers who are fortunate enough to be employed at the higher minimum wage will likely suffer work conditions worse than they would in the absence of a legislated minimum wage.  Most employers of low-skilled, entry-level workers – firms such fast-food restaurants, lawn-care services, and motels – operate in highly competitive industries.  These firms have no excess profits out of which they can, even if they wished, pay the mandated higher wages without cutting costs on some other fronts.  So employers of minimum-wage workers will demand more work effort per hour from their low-skilled workers – these employers will be less lenient with employees who use work time for personal matters – they’ll pay fewer fringe benefits – they’ll be less able to afford to hire workers for overtime work (which is one reason that I said in my opening line that not all, but only “many,” of these workers who are employed at the minimum wage will experience higher annual incomes).

Yet despite these economic realities, I support a higher minimum wage because I believe that the benefits to the workers who will receive higher hourly wages as a result outweigh the costs to those who will be rendered indefinitely unemployed or channeled into the underground economy.

Please join me in supporting this policy to promote social justice!