Here’s a note to a very vigorous regular correspondent:
Aaron the Aaron
Dear Mr. the Aaron:
Understandably bemoaning the “illness of inadequate pay,” you accuse me of “callousness” when I argue against a government policy of setting a minimum wage on the basis of what government officials determine is the minimum amount of income necessary for a person to live.
With respect, the truly callous ones are those who insist that the well-being of low-skilled workers can be improved by minimum-wage legislation (regardless of how that wage is set).
In a market economy a worker’s low wage reflects that worker’s low marginal productivity – that is, the wage reflects the scanty contribution of that worker to his or her employer’s bottom line. The root ‘illness,’ therefore, is the worker’s low productivity; the low wage is merely a symptom of this illness. So the only way to cure this illness is to raise that worker’s marginal productivity. And while there are good and bad ways to raise that worker’s marginal productivity (the best way is for that worker to become more skilled), to demand a pay hike for that low-skilled worker changes only the reported symptom without addressing, much less curing, the underlying illness.
Changing analogies somewhat: just as a Toyota Yaris cannot be made as valuable to car buyers as is the more luxurious Toyota Avalon by a government diktat demanding that Yarises sell at prices no lower than the price of Avalons – just as such a diktat simply ensures that sellers of such low-end cars find no buyers – a low-skilled worker cannot be made as valuable to labor buyers as is a higher-skilled worker by a government diktat demanding that hours of low-skilled work sell at wages no lower than the wage of higher-skilled workers. Such a diktat simply ensures that sellers of such low-skilled work find no buyers.
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