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Some Minimum-Wage Scenarios

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The following is prompted by this splendid comment [2] by Thomas Coss on this recent Cafe Hayek blog post [3]:

This minimum wage stuff is a head-fake; silly diversions so that political do-gooders can think highly about themselves, safe from any of the consequences.

Indeed so.  By advocating the use of government force to strip low-skilled workers of one of their most valuable bargaining chips (namely, the ability to compete for employment by offering to work at hourly wages below the government-stipulated minimum) minimum-wage advocates prance around publicly proclaiming their humanity.  And because a great majority of people are ignorant of basic economics, these minimum-wage advocates are indeed seen as being great humanitarians.

But these advocates are like bomber pilots, flying high above the details of everyday reality and blind to the carnage that they unleash [4].  Most of them deny that there are any victims at all.  The minimum wage magically pays for itself by causing more money to be spent!  Or by increasing worker productivity in ways that employers are too stupid on their own to realize are possible.  Or by overriding the consequences of monopsony power – power the reality of which is loudly alleged by some economists but which is clearly absurd to anyone who looks with good sense upon modern-day U.S. labor markets.  (Most tellingly, such assertions of monopsony power are clearly not believed by competent entrepreneurs who would make boatloads of bucks by exploiting such monopsony power were it real.)

Other advocates of the minimum wage concede bloodlessly that the minimum wage does render some workers unemployable, but these advocates declare that the higher incomes of workers who keep their jobs somehow make up for hardships forcibly imposed on the unemployed workers.

To minimum-wage advocates such as these I present the following ten scenarios – all involving bandits who who, like Robin Hood, give to the poor but who, unlike Robin Hood, steal not from the rich but only from the poor:

First, these bandits have the miraculous ability to operate costlessly; they routinely steal $1 million annually from a randomly selected group of poor people and then give the entire $1m to a different randomly selected group of poor people.  The people as a whole, just like poor people as a whole, are made neither poorer nor richer.

Second, these bandits, still operating costlessly, have a miracle machine that transforms $1,000,000 stolen from randomly selected poor people into $1,000,001 if the proceeds are given to another randomly selected group of poor people.  The bandits give the $1,000,001 to a different group of poor people from which it is stolen.  The overall economy, in this scenario, becomes wealthier by $1 as long as the $1m is stolen from people classified that year as “poor” and given to a different group of people who are classified that year as “poor.”

Third, these bandits, still operating costlessly, have a miracle machine that transforms $1m stolen from randomly selected poor people into $2m if the proceeds are given to another randomly selected group of poor people.  The bandits give the $2m to a different group of poor people from which it is stolen.  The overall economy, in this scenario, becomes wealthier by $1m as long as the $1m is stolen from people classified that year as “poor” and given to a different group of people who are classified that year as “poor.”

Fourth, these bandits annually steal $1m from randomly selected poor people as well as another $1m from that group of rich people who are especially active in hiring poor people as workers; the bandits then transfer the full $2m to a randomly selected group of other poor people.  No other economic consequences arise as a result of the bandits’ activities.

Fifth, these bandits annually steal $1m from randomly selected poor people as well as another $1m from that group of rich people who are especially active in hiring poor people as workers; the bandits then transfer the full $2m to a randomly selected group of other poor people.  But the bandits’ activities cause the value of annual economic output for the economy as a whole to fall by $500,000 – meaning that, while in the aggregate that group of people classified in any one year as “poor” is made richer by $1m, the people as a whole – rich, middle-class, and poor taken together – are each year made poorer by $500,000.

Sixth, seventh, eighth, ninth, and tenth: Same as each of the above five scenarios except that the poor people singled out in each scenario to be victims, as well as the poor people who are singled out in each scenario to be the recipients of the bandits’ booty, are not randomly chosen.  The victims are disproportionately poor people who suffer other economic or social disadvantages, such as being members of a minority racial or ethnic group that many people in society dislike, while recipients are poor people who suffer fewer such other disadvantages (they are, for example, simply young, and hence not-yet-skilled, workers from affluent families).

Which, if any, of the above scenarios, do you – you advocates of the minimum-wage as an income-transfer mechanism – think passes moral muster?

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