On Robert Reich on the Minimum Wage

by Don Boudreaux on May 8, 2015

in Myths and Fallacies, Seen and Unseen, Video, Work

Former U.S. Secretary of Labor Robert Reich recently did a short video in which he endorses a policy of raising the national minimum wage in the U.S. to $15 per hour.  That’s a 107 percent (!) increase over its current level of $7.25.  Amazingly, Reich seems seriously to believe that it is mere ‘scare-mongering’ to suggest that more than doubling the minimum wage will destroy jobs for any, much less many, low-skilled workers.

Nearly every sentence out of Reich’s mouth in this video is flawed.  No matter what you might think of the rather esoteric exceptions to the economic case against the minimum wage – such as ‘labor markets are filled with monopsony power’ – the reality is that foolishness such as that peddled here by Reich is the kind and quality of argument that drives the minimum-wage debate in the popular press and in popular culture (and, hence, in politics).  The fact that such manifest idiocy as is on display in this video is taken seriously by so many people speaks to the vital need for more widespread, basic economic education.

When Cafe Hayek was down, David Boaz generously offered me some space at Cato’s excellent blog, Cato@Liberty, to blog on Reich’s video.  I did so here.  And later here at the Cafe I’ll likely highlight and challenge some other of the many flaws that infect this video.

In this slice from my post at Cato@Liberty I use a reductio ad absurdum – an argument that I almost never use in the minimum-wage debate because, usually, such an argument isn’t appropriate in this debate.  But the reductio is indeed appropriate given Reich’s premises and assumptions:

If Reich is correct that raising the minimum wage by $7.75 per hour will do nothing but enrich all low-wage workers to the tune of $7.75 per hour because workers will spend all of their additional earnings in ways that make it profitable for their employers to pay them an additional $7.75 per hour, then it can legitimately be asked: Why not raise the minimum wage to $150 per hour?  If higher minimum wages are fully returned to employers in the form of higher spending by workers as Reich theorizes, then there is no obvious limit to the amount by which government can hike the minimum wage before risking an increase in unemployment.

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