A Mental Experiment for Those Who Deny that Minimum Wages Destroy Jobs

by Don Boudreaux on January 11, 2016

in Seen and Unseen, Work

Behind any respectable argument – that is, any argument consistent with economic theory – that concludes that raising the minimum wage will not cause job losses for any low-skilled workers is the assumption that each worker who is currently paid an hourly wage below the higher proposed minimum wage is currently paid less per hour than is the hourly value that that worker adds to the bottom line of his or her employer.  Sometimes this assumption is implicit.  Other times this assumption is explicit, as in the claim that monopsony power is rampant in reality.  (Another assumption in such an argument is that government officials are remarkably adept at divining just how high they can raise the minimum wage in a monopsony-cursed labor market without causing job losses.)

Of course, for an argument to be consistent with economic theory is not at all a sufficient condition for that argument to be consistent with economic reality.  Whether or not it is plausible that scores of workers in market economies are in reality consistently paid wages below the values of their marginal products – that is, whether or not it is plausible that profit-seeking businesses in real-world market economies consistently leave profits on the table by failing to employ workers who can be gotten at bargain wages – is a different question altogether.  Yet for purposes of this post I will play along with those economists who support the minimum wage and assume about reality a situation that in fact is highly implausible – namely, that scores of low-skilled workers remain mysteriously underpaid, relative to the values of their marginal products, in market economies.

If scores of low-skilled workers are underpaid, then the following should also be true: Reductions (at least ‘modest’ ones) in the productivities of low-skilled workers should cause no job losses for low-skilled workers.  For example, if low-skilled workers generally started showing up for work slightly drunk then, while their productivities would fall as a result, these tipsy workers would remain profitable for their employers to continue to employ.  Ditto if low-skilled workers generally became less trustworthy and started stealing each hour from their employers amounts of merchandise valued at, say, fifteen percent of the value of these workers’ hourly wages.

Here’s a more realistic example: If government K-12 schools become even worse at the task of educating students, then there would be no resulting decline in the number of hours of employment of low-skilled workers, despite the fact that these workers are less productive than were earlier generations of low-skilled workers.  Even a government-mandated minimum-hourly-break-time would cause no decline in employment.

Obviously, no one proposes that low-skilled workers become less productive or that they become more prone to commit employee theft.  Nor does anyone propose that government mandate a minimum-hourly-break time.  But it’s a useful test of someone’s belief that minimum wages (even ‘modest’ ones) cause no reductions in employment options for low-skilled workers for that someone to ask himself or herself if he or she believes that, say, an increased general tendency of low-skilled workers to be tipsy while on the job will also not reduce firms’ desires to employ such workers.

I myself am quite confident that any reduction, regardless of its cause, in the productivities of low-skilled workers will (absent any off-setting reductions in worker pay) result eventually in fewer jobs for low-skilled workers.  My confidence in this prediction is of a piece with my confidence that minimum wages result in fewer jobs for low-skilled workers.  Anyone who denies the job-destroying consequences of minimum wages but who worries about the job-destroying consequences of a reduction in worker productivity unaccompanied by a reduction in worker pay is inconsistent.


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