The Intellectual Inconsistency of Economists Who Support the Phasing-In of Minimum Wages

by Don Boudreaux on August 28, 2015

in Work

Here’s a point that’s worth repeating: only if monopsony power is enjoyed by employers of low-skilled workers is there even the possibility (although still not the guarantee) that a government-mandated minimum wage will not reduce the employment options of at least some low-skilled workers.  That is, any economically coherent case that the minimum wage does not harm at least some low-skilled workers must be based upon the discovered (or, far more commonly, the simply presumed) existence in real-world labor markets of monopsony power.*

Yet if such monopsony power did indeed exist in reality in sufficient degree to economically justify minimum-wage legislation (or to justify hikes in an existing minimum wage), then there is no reason why any real increase in the minimum wage must be phased in.  Implementing or raising the minimum wage all at once will immediately yield all of the benefits that believers in the existence of monopsony power claim that the minimum wage will yield without doing any of harm that we skeptics of the minimum wage warn against.

And yet many minimum-wage hikes are phased in.  As Mark Perry points out, such phase-ins are evidence against the proposition that minimum-wage policies are justified by economic science.


* I suppose that one can stretch the meaning of “economically coherent case” for a minimum-wage policy to include also the hypothesis that a higher minimum wage will so raise the productivity of all low-skilled workers that employers will actually benefit from paying the higher wage.  For reasons spelled out here at the Cafe and in many other places featuring economic good sense, this case for the minimum wage is quite an absurd stretch.  It is quite an absurd stretch given that each employer already possesses – absent minimum-wage legislation (indeed, as Paul Krugman correctly pointed out years ago, especially absent minimum-wage legislation!) – strong incentives to raise workers’ pay if such pay raises improve employers’ bottom lines.  But even if we accept this bizarre case for the minimum wage as economically valid, it, too, is inconsistent with the reality that many minimum-wage hikes are phased in: why, after all, if better-paid employees will turn out to be profitable for employers would anyone want the source of this bounty to be phased in?  Why not reap these profits immediately and all-at-once?!


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