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Minimum Logic

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Here’s a letter to the Financial Times:

Joseph Stiglitz concludes that raising the minimum wage in the U.S. will increase American workers’ bargaining power (“Pay pressure [2],” Sept. 19).  Mr Stiglitz reaches this conclusion by arguing that American workers’ pay is now kept low in part by “asymmetric globalization” – a phenomenon mentioned but not defined in your pages, but which Mr Stiglitz suggested last year in the New York Times [3] involves the ability of “mobile capital” to demand “that workers make wage concessions.”

Mr Stiglitz’s argument for raising the minimum wage is flawed.

The high global mobility of today’s capital that he fingers as a culprit causing stagnant wages will not in the least be reduced by a hike in the minimum wage.  Instead, such a hike will only cause capital to more intently use this mobility to leave America in search of more foreign workers – workers who would be made even more attractive to mobile capital if Uncle Sam follows Mr Stiglitz’s advice to raise the minimum wage that must be paid to American workers.

In short, by the logic of Mr Stiglitz’s own premises, a higher minimum wage in the U.S. would weaken rather than strengthen American workers’ bargaining power.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

Stiglitz’s argument is not only wrong; it is mysteriously quite illogical.  Ah well.  A much-better analysis is offered, in the same Financial Times article [2], by Deirdre McCloskey, who observes that

[t]o suppose that restricting free exchange makes the poor or the median better off is magical thinking.

Magical thinking indeed [4].

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