Minimum-Wage Legislation Does Indeed Reduce Workers’ Freedom

by Don Boudreaux on June 11, 2015

in Myths and Fallacies, Seen and Unseen, Work

Adam Allouba’s excellent new essay on the freedom-restricting nature of minimum-wage legislation prompted my friend Janet Neilson to get into an argument with one of her friends (call him Mr. X).  Mr. X rejects the claim that minimum-wage legislation restricts low-skilled workers’ “freedom to participate in the labour market.”  Here’s part of an e-mail that Mr. X sent to Janet:

No one is “locked out” of the job market [by minimum-wage legislation]. That framing relies on their [sic] being an actor directly preventing them from taking a job. In the most basic models, the minimum wage might reduce the supply of jobs, but that’s a far cry from actually limiting a person’s negative freedom to look for a job, apply for the job, and convince the company they can add value beyond their paycheck. A minimum wage might be one factor (along with several others – disability, financial crisis, natural disaster etc) that inhibits their ability to get a job, but does not restrict their freedom to participate in the labour market.

Mr. X is mistaken.  Were I speaking to him, I’d present the following scenario and questions to Mr. X:

Suppose that, in order to increase the hourly wages paid to low-skilled workers, government requires that all low-skilled workers – all teenagers, all immigrants with no more than a grade-school education, and anyone who has completed a maximum of 12 years or fewer of formal schooling and who has never before held a job in the U.S. – first obtain a government permit before searching for work.  The government declares illegal the employment of any such person who does not have a valid government-issued work permit.  And the government enforces this permit policy vigorously.

Further, the government intentionally limits the number of work permits it issues.  The number of work permits is purposely kept well below the number of such low-skilled people in the population.  By keeping the number of such permits lower than the number of such low-skilled people in the population, the government’s work-permit system – again, by design – artificially reduces the supply of low-skilled labor and, thus, artificially increases the wages paid to those low-skilled workers who are among the lucky ones to be issued permits.  (Assume that the permits are distributed randomly among low-skilled people.)  Each and every low-skilled person who is unable to acquire a permit is not permitted to work.  These permit-less people must remain unemployed.

Would you, Mr. X, support this scheme?

The effects of this hypothetical work-permit scheme are nearly identical to that of minimum-wage legislation as it is implemented in practice today.*  Do you, Mr. X, believe that the workers who cannot get a permit (because the luck of the draw worked against them, despite each individual having had an ex ante fair chance to get a permit) are treated fairly by the system?  Would you, Mr. X, deny that this work-permit scheme restricts people’s freedom?  Do you, Mr. X, deny that those workers who are without the required permits are locked-out of jobs?

Dressing a pig in a tutu does not transform the creature into a ballerina.
* I’m being too kind here to the actual practice of minimum-wage legislation.  In practice, the particular people who are denied employment because of minimum-wage legislation are not determined randomly.  The minimum wage artificially raises the relative attractiveness to employers of hiring ‘superior’ low-skilled workers over less-superior low-skilled workers.  For example, the minimum wage artificially raises the attractiveness to employers of hiring white teens from affluent leafy suburbs with good schools relative to the hiring of minority teens from poor inner cities with bad schools.


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