On this EconLog post on minimum-wage research by my colleague Bryan Caplan, commenter Thaomas writes:
Proponents of a higher minimum wage are trying for a political effect, raising the incomes of low wage workers when better methods like an EITC are not politically feasible. This still requires facts. Is the elasticity of demand in the specific market less than one?
Thaomas here sounds reasonable. Yet he is mistaken. Here’s my reply to Thaomas:
Thaomas writes that assessing the effects of minimum-wage policies on poverty-reduction “requires facts.” He’s correct. But he is incorrect to assume – as he does – that the relevant fact is whether or not “the elasticity of demand in the specific market [is] less than one.” Other facts are relevant, such as ‘Is the relevant test of a minimum-wage policy whether or not it increases the total income of a specified group of workers even if that policy reduces, perhaps to zero, the incomes of several of the members of that group?’
In one sense this latter question is normative, which is not to say irrelevant. In matters of government policy, facts are useful only insofar as mastery of them better enables us to achieve the goals that we wish to achieve. And the selection and ranking of goals is ultimately and unavoidably a value judgment.
Yet in another sense this latter question is factual: Do we, or do we not, agree that an acceptable outcome is achieved if a minimum wage raises the total income of low-skilled workers even if it reduces, perhaps to zero, the incomes of many individual low-skilled workers?
Drilling down just a bit, Thaomas overlooks the fact (!) that there is no objective – no factual – definition or description of the relevant group of workers over which the total-income effects of minimum wages is to be assessed. Does this group, in the U.S., consist only of workers currently earning $7.25 per hour or less? Or does this group consist of workers making, say, $7.98 per hour or less? Or, as a third alternative, does this group consist only of workers making, say, $8.00 per hour or less and who are heads of households?
Obviously, questions about what is the relevant group over which the elasticity of demand for its labor services is to be assessed factually must be asked and answered satisfactorily before any empirical investigation into the income effects on that group of a minimum wage can commence. The number of different ways to plausibly define this relevant group are many, and choosing which of these many definitions is the appropriate one cannot possibly be an exercise purely in determining ‘the facts’; it must involve value judgments.
It’s comforting to imagine that the formation of government policy can be reduced to an exercise in discovering, processing, and following only “the facts.” But such an imagined method of forming policy is just that: imaginary. It can never be otherwise. That’s a fact.
