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The Unsound Economics and Careless Ethics of Minimum-Wage Proponents

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A few days ago I called out a recent Ford Foundation blog post for its completely uncritical analysis of the case for raising the national hourly minimum wage in the United States to $15 [2].  I want here to make a couple of further points about this Ford Foundation post – in particular about its author’s (Anna Shireen Wadia’s) claim that

Increasing the minimum wage puts more money in the pockets of people who need it the most.

First, note that this claim is built on the presumption – supported nowhere in the text – that the minimum wage actually does put more money in the pocket of people who need it the most.  Ms. Wadia’s post offers not as much as a passing, faint whiff of recognition of the possibility that:

(1) if the demand for low-skilled workers is elastic over this large wage-change range (as is likely, especially over the long-run), the total amount of wages paid to low-skilled workers as a group will fall rather than rise;

(2) even if the total amount of money paid to low-skilled workers as a group rises, some of these workers are likely to be rendered unemployable by the higher minimum wage, while the onerousness of the jobs held by many other low-skilled workers will likely worsen; and

(3) even if the total amount of money paid to low-skilled workers as a group rises, the workers who get jobs at the higher minimum wage might well be – indeed, are likely to be – not the people who need this extra money “the most” but, instead, people who need it the least (such as, for example, my healthy 19-year-old physics-and-math majoring son who hails from an upper-middle-class family and has his own car, has no children at home to care for, and whose native language is English; my son now has a job that pays him the minimum wage; he had no trouble getting that job).

The failure to consider these likely consequences of minimum wages is typical.  Sadly so.

Second, if we grant, for sake of argument, that the state must and should actively pursue a policy that “puts more money in the pockets of people who need it the most,” why is the minimum wage presumed to be the best, or even an acceptable, policy for doing so?  Why must employers of low-skilled workers be singled out for having to pay the tab for this government policy?  Why not give low-skilled workers handouts from general tax revenues?

If you think that a policy of imposing the cost of minimum-wage hikes (to put “more money in the pockets of people who need it the most”) is desirable, why not instead, say, charge each and every driver of a luxury automobile – say, an automobile that sells for $40,000 or more – a $2.00 fee each and every time he or she stops at a red light?  (The fees could be charged to those drivers’ credit cards, and triggered by dashboard devise, on each luxury automobile, that detects when that vehicle is stopped by a red light.)  The funds can then be distributed to low-skilled workers to supplement their incomes.

Apart from the (perhaps) greater administrative difficulty of my proposed special tax on luxury-cars-stopped-at-red-lights means of acquiring the money to “put in the pockets” of low-skilled workers, why shouldn’t this tax – or something akin to it – be considered to replace minimum-wage legislation?  My proposed tax would be no more unfair than a minimum wage.  And it would conform to the ethics of minimum-wage proponents who want to use the state to forcibly take money from some people in order to put “more money in the pockets” of other people who presumably “need” the extra money more than that money is needed by the people from whom it is taken.

Of course, skeptics of my red-light tax might worry that drivers of luxury cars would, in response to this tax, alter their driving habits in order to minimize their exposure to the tax.  Such drivers, indeed, would likely respond to this tax by, say, taking routes with fewer traffic lights, by being more aggressive in plowing through yellow lights, and by using public transportation more frequently.  Heck, in the long run many such drivers would, rather than buy that car that’s priced at $40,100 instead buy another car that’s priced at $39,900.

Alas, ’tis true.  Efforts by those rich luxury-car drivers to minimize their exposure to the tax might well result in too little revenue to put “in the pockets of people who need it the most”…..

…. but wait!  What am I saying?!  I take back the previous paragraph.  After all, proponents of the minimum wage – when they discuss the minimum wage – steadfastly reject as fallacious any and all arguments that say that people who are hit up for money to put “in the pockets of people who need it the most” respond in ways that reduce their exposure to these higher charges.  So, given that my proposed red-light tax is, on the same assumptions used by minimum-wage proponents, just as likely as is a hike in the minimum wage to raise enough revenue to put more money “in the pockets of people who need it the most,” it’s fair to ask: why not use my red-light tax instead of a minimum wage?

It’s true that a minimum wage might be administratively more convenient than my proposed red-light tax, but if the goal of the minimum wage is, indeed, to put more money “in the pockets of people who need it the most,” then there’s nothing that’s especially ethically appealing about a minimum wage compared to my red-light tax – or compared to any of countless alternative possible schemes of putting “more money in the pockets of people who need it the most.”  Why, then, the obsession with minimum wages?

Methinks that minimum-wage proponents are not only poor economists, but also careless ethicists.

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