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Minimum Wages: Making the Economy Safe for Bigots

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Suppose (realistically) that society has in it a number of people who harbor in their breasts uncivilized bigotry against certain kinds of fellow human beings – bigotry against, say, blacks, or women, or Jews, or Muslims, or Hispanics, or gays and lesbians, or ugly people.  Further suppose (also realistically) that some of these bigots are in charge of making hiring and firing decisions for firms.

While a civilized human being does not countenance efforts to use force on bigots as a means of changing the way bigots think and act (as long as the bigots think and act only peacefully), a civilized human being nevertheless applauds any and all forms of peacefully expressed social and economic pressures to discourage at least the outward manifestations of bigotry.  To this end, suppose that a number of people – call them U-Workers – possess peaceful yet effective means of causing any employer to suffer self-inflicted pain whenever that employer exercises bigotry in the workplace.  Let’s say, for example, that U-Workers are equipped each with an aura that, when any U-Worker is denied a job for reasons of bigotry, causes the job-denier to suffer mental misery.  This self-inflicted pain on bigoted employers is so significant that a number of these employers, simply to avoid suffering this mental pain, reduce – and in many cases stop altogether – letting their bigotry guide their hiring and firing decisions.  Wouldn’t we applaud this neat little aura – this splendid bit of power – that is possessed by U-Workers?

Now suppose that a politician – let’s call him, oh, Frankie Rookefelt – successfully organizes a coalition of fellow politicians to strip U-Workers of their aura.  No longer do U-Workers possess the power to cause mental pain to employers who, in an uncivilized way, discriminate against U-Workers in the workplace.  Would civilized and liberal-minded people applaud Mr. Rookefelt and his handiwork?  Would civilized and liberal-minded people think that the country or the economy is improved by Mr. Rookefelt’s effort?  Would civilized and liberal-minded people think that Mr. Rookefelt’s legislation helps U-Workers?  Surely not.

Yet many civilized and liberal-minded people applaud Franklin Roosevelt and the minimum-wage legislation that he helped to enact at the national level in 1938, and that remains in effect today.  Why?  The minimum wage strips ‘undesirable’ workers of the ability – by offering to work at wages below the legislated minimum – to peacefully inflict pain on employers who refuse, because of bigotry, to hire them.  The employer who, absent the minimum wage, insists on refusing to hire the despised gay or Muslim person suffers lower profits if that gay or Muslim person offers to work for this employer at a wage below the legislated minimum.

Why do so many civilized and liberal-minded people continue to regard legislated minimum wages as beneficial, civilized, and sound government policy?  They should not do so.

Here’s the great Harold Demsetz writing in 1965 in the North Carolina Law Review; the article is entitled “Minorities in the Market Place”; this quotation is from pages 85-86 of this article as it is reprinted in Ownership, Control, and the Firm [2] (Volume 1 of a collection of some of Demsetz’s finest articles [1988]) (footnote excluded):

A minimum wage law prevents a non-preferred person from offering his services for a lower wage than is received by his preferred (but equally productive) fellow worker.  A lower wage request by, or a lower market wage for, the non-preferred job applicant offers wealth compensation to discriminating employers that will reduce their consumption of discrimination.  The cost to employers of a continuance of the degree of discrimination they have been practicing is increased by allowing non-preferred workers to offer their services for lower wages.  Prohibiting an employer from employing workers at wages lower than the legal minimum prohibits the offering of this wealth compensation to (or the imposition of this wealth cost on) discriminating employers.  These employers will then choose from among competing applicants solely on the basis of personal characteristics.  Non-preferred workers, turned away in larger numbers under these conditions, will be forced to accept less desirable employment elsewhere, possibly in occupations not covered by the minimum wage law, or will be forced into the ranks of the unemployed.

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