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Maximumly Misleading on Minimum Wages

Here’s a letter to the American Prospect:

In “Why Economists Cling to Discredited Ideas” (Winter 2015) Jeff Madrick caricatures modern economics as well as the policies that economists supposedly foisted upon an unsuspecting public.  Among the many flaws that infect this essay is Madrick’s defense of minimum-wage legislation.

Madrick mistakenly suggests that recent empirical research shows convincingly that minimum wages do not diminish to any meaningful degree the job opportunities open to low-skilled workers.  Some research reaches this conclusion, but a great deal of other research reaches a conclusion quite the opposite.*

So is this matter a toss-up?  It might be were it not for the fact that the idea behind economists’ opposition to minimum-wage legislation is both foundational and not remotely discredited.  This idea is not (contrary to Madrick’s telling) that the invisible hand operates flawlessly but, instead, that as people incur higher costs of engaging in some activity people engage in less of that activity.  Indeed, the very same proposition that assures many economists that a government policy of raising firms’ costs of employing low-skilled workers causes firms to employ fewer such workers also, and quite rightly, assures even “Progressives” that, for example, a higher tax on carbon emissions causes firms to emit less carbon and that a steeper tariff on imports causes consumers to buy fewer imports.

Until and unless a compelling reason is found to conclude that low-skilled labor, apparently alone among all goods and services, is not subject to this economic reality (and neither the alleged monopsony power of employers nor the presumed ability of higher minimum-wages to spark sufficiently greater consumer demand comes within light-years of “compelling”), wise economists will and should continue to warn that minimum wages inflict disproportionate harm on the very workers who they are ostensibly meant to help.

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

* See, for example, David Neumark and William L. Wascher, Minimum Wages, reprint ed. (Cambridge, MA: MIT Press, 2010).

(I thank Quinn Connelly for the pointer to Madrick’s essay.)


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