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Time to See this Reality

Suppose – just suppose – that the length of an hour in people’s everyday interpersonal dealings is variable.  That is, suppose that individuals in their everyday dealings with each other often mutually agree to define the time-length of “one hour” to be something other than 60 minutes.  For example, when Sam proposes to pick Suzie up for a date in three hours time and Suzie accepts, both Sam and Suzie agree that each hour will be reckoned as 90 minutes – so that, 270 minutes later Sam shows up on time at Suzie’s apartment to find her ready to be picked-up for their date.

Let’s continue with the example.  Suzie owns and operates “Suzie’s Super Maids” – a house-cleaning service.  Suzie hires low-skilled workers.  Specifically, she currently has on her staff 10 such workers.  Each of these workers works an average of 40 60-minute hours weekly and each is paid $7.25 for each such hour of work – which amounts to just over 12 cents per minute.  Suzie’s total labor expense each week, therefore, is $2,900.

One day, Suzie’s workers are ordered by the government to refuse all jobs that pay them less than $10 per hour.  Suzie’s workers duly inform her of the diktat that they are now under.  Without blinking, Suzie replies “Oh, no worries!  From now on at Suzie’s Super Maids an hour is 83 minutes long.  Each of you will be paid the mandated minimum of $10 for each of those hours that you work, and each of you each week will work 28.9 of these hours.”

In this example nothing of significance changes.  All changes are nominal – that is, in name only.  The number of minutes that are named “one hour” changes from 60 to 83 and, therefore, the number of hours in the work week changes from 40 to 28.9.  But nothing real changes: not the workers’ pay, not the number of hours they work, nothing.

Of course, in reality the number of minutes in an hour is set pretty firmly at 60 (just as in the United States the definition of a “dollar” is set pretty firmly to mean “one Federal Reserve dollar”).  Therefore, a government policy of forcing low-skilled workers to demand higher-than-market hourly wages for their services will unavoidably have some real (rather than only nominal) consequences.  Nevertheless, the above hypothetical of the ‘flexible-length hour’ is useful because it reveals that, if hours really were flexible in length, employers and employees would almost certainly respond to a mandated hike in the hourly minimum wage simply by increasing the number of minutes in the unit of time called “hour” in such a way that workers’ actual pay and work duties remain unchanged.

You ask “So what?”  Here’s what: if you agree that employers would indeed respond as indicated in this hypothetical, then you agree that employers do not react to hikes in the minimum wage simply and only by following the government’s command to pay workers more for each unit of work.  Those who are so commanded search for, and are certain to find, ways to minimize the burdens of whatever commands are imposed upon them.

In the above scenario with a flexible-length hour, a response is available that eliminates (rather than just minimizes) the burdens that would otherwise be caused by the ordered hike in the hourly minimum wage.  Again, in reality no such happy response is available.  But this fact doesn’t mean that responses that reduce (even if they don’t eliminate) the burdens won’t be sought and used – burden-reducing responses such as employing fewer low-skilled workers, cutting the value of low-skilled workers’ fringe benefits, or requiring as part of the employment agreement that these workers work harder and faster each hour.

Put differently, it is unscientific, unreasonable, and unwise to suppose that the occasions on which burden-reducing responses to minimum-wage hikes are used are only those that allow such burdens to be escaped completely.  It is unscientific, unreasonable, and unwise to overlook the vast range and large number of ways that employers lighten, if not eliminate, the burdens they bear from higher minimum wages by reducing the value to workers of some or all aspects of employment contracts other than that one aspect that stipulates a higher hourly wage.

(I thank my Mercatus Center colleague Bob Graboyes for a conversation this morning that prompted this blog post.  Our conversation, I should quickly note, had nothing to do with minimum-wage legislation and Bob is in no way to blame for any flaws that might infect my reasoning above.)