Friday Thoughts on the Minimum Wage

by Don Boudreaux on August 21, 2015

in Seen and Unseen, Work

On Thursday, October 22nd, at Dartmouth College, I’ll be one of three economists featured on a panel discussing the minimum wage.  My fellow panelists will be Arindrajit Dube and Lara Shore-Sheppard.  (I thank Doug Irwin for inviting me to participate on this panel.)


An old grad-school friend from NYU, Mark Phillips, linked on Facebook to this recent post of mine – which almost immediately drew hostile responses.  The first response was a carefully considered, deep, scholarly, and charming explanation consisting of a single word: “bulls**t.”  The second response dismissed my objection to the minimum wage as a “right-wing mantra” that has been “disproved” by “data from the rest of the world.”

What, I wonder, is so right-wing about the claim that as the cost of doing action x rises, people are less likely to do x?  Is it a “right-wing mantra” that, say, taxing carbon emissions will cause there to be few carbon emissions than otherwise?  Is it a “right-wing mantra” that taxing the purchase of cigarettes causes people to purchase fewer cigarettes than otherwise?  Is it a “right-wing mantra” that higher tariffs on imports reduce imports?  Is it a “right-wing mantra” that imposing a poll tax reduces the number of people who vote?  If the answer to each of these questions is ‘no’ (and it surely is, even non-right-wing folk will agree), then what exactly about the employment of low-skilled workers makes that specific activity exempt from the law of demand?  (Yes, yes; I know: monopsony power.  But the claim that such power exists in reality is empirically suspect – see below.  And here.)

Although I believe that I’ve asked this question before at the Cafe, I’ll ask it again now: would it be a “right-wing mantra” to believe that firms would employ fewer low-skilled workers if government, instead of imposing a minimum wage of $7.25 per hour, taxes each firm the amount ($7.25 – w) for each hour of labor it employs at a wage of w (for all w between 0 and 7.25), and then distributes the revenues from this tax to low-income households?  Would those who crusade righteously against “right-wing mantras” applaud this special tax on the employment of low-skilled workers?  If not, why not?

(An especially befuddling claim made by this second commenter at Mark’s Facebook post was that raising the minimum wage would result in more money being spent by somehow causing the release of money that is now being hoarded by the likes of drug lords, pawn-shop owners, and owners of gambling casinos.  I’ll let that claim speak for itself.)


Back now to the monopsony claim.  Here’s a recent news story out of Tulsa, Oklahoma.  (HT Christopher Wiseley)  True, it’s an account of just one firm and just one group of low-skilled workers, but it does serve as relevant evidence against the proposition that monopsony power is rampant in the market for low-skilled workers.


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