Aggregate Thinking Is Often Scientifically Spurious and Ethically Offensive

by Don Boudreaux on October 10, 2015

in Seen and Unseen, Work

Here’s a letter to the New York Times:

Although Alan Krueger rightly warns that raising the hourly minimum wage to $15 will likely throw many low-skilled workers out of jobs, one criterion that he accepts for assessing the merits of minimum-wage hikes is flawed (“The Minimum Wage: How Much Is Too Much?” Oct. 9).  This criterion is revealed when Mr. Krueger asks “at what level would further minimum wage increases result in more job losses than wage gains, lowering the earnings of low-wage workers as a whole?”  Apparently, he supports minimum-wage hikes as long as they cause the earnings of low-wage workers “as a whole” to rise.

To see why this criterion is flawed, suppose that government were to prohibit the employment of all blacks under the age of 20.  It’s quite possible that this policy of arbitrarily removing some subset of low-wage workers (black teenagers) from the labor force would so increase the wages of non-black low-wage workers that the earnings of low-wage workers as a group would rise.  Yet I’m confident that Mr. Krueger would (and rightly so) oppose such a policy even if empirical studies unanimously find that it does indeed increase “the earnings of low-wage workers as a whole.”

If in fact Mr. Krueger would oppose such a policy, then he hasn’t carefully considered the full implications of this stated criterion for assessing the merits of the minimum wage.  The only difference separating the minimum wage from a policy of outlawing the employment of black teens is that the racial identities of the workers who might be rendered unemployable by the minimum wage aren’t specified in the minimum-wage legislation – a difference that should be immaterial to anyone who believes that the minimum wage is justified if it raises the earnings of low-paid workers “as a whole.”

Contrary to Mr. Krueger’s implication, therefore, any government policy that increases the incomes of some members of a group by artificially rendering other members of that group unemployable should – regardless of how those members are rendered unemployable – be rejected even if the policy causes the group’s income “as a whole” to rise.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

One of the frustrating features of the minimum-wage debate is that proponents of the minimum wage – that is, proponents of the policy of forcibly stripping low-skilled workers of the bargaining chip of being able to compete for jobs by offering to work at wages below the legislatively set minimum – are often unclear about which criterion (or criteria) they use to judge the policy’s merits.  Sometimes the minimum wage is justified because its proponents deny that it causes any job losses; other times it’s justified with the claim that the job losses it causes are statistically undetectable (and, therefore, such job losses should be presumed to be non-existent); yet other times it is justified with the claim that the job losses that it causes, while real, are so small that they are outweighed by the wage gains enjoyed by workers who do not lose their jobs.  (The most common specific version of this last justification for the minimum wage is that, while the job losses caused by the minimum wage are real, they are also sufficiently small so that wage gains enjoyed by still-employed low-wage workers result in earnings gains by these workers that are larger, in total monetary value, to the dollar value of the earnings lost by the workers who are rendered unemployed by the minimum wage.  This specific, alleged justification for the minimum wage is among those apparently accepted by Alan Krueger as valid; it’s this justification that I address in the above letter to the editor.)

……

Here’s a question for informed readers: What are the best empirical studies that measure not only current job losses caused by the minimum wage, but measure also current income losses and losses in future income caused by the reality that the minimum wage prevents, or at least delays, many low-skilled workers from getting on-the-job experience and training?

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