This note is to a first-year economics graduate student who writes that he “appreciates the role of markets and prices” but not as “blindly” as I do.
Mr. Will Keith
Thanks for your e-mail. Arguing that government “must have flexibility to raise the minimum wage when necessary,” you challenge my “extreme position” against any and all minimum wages. “Isn’t it true,” you ask, “that employers sometimes have enough power to keep pay too low for workers?”
My answer is yes. Of course reality is riddled with individual situations, spread out across locales and time, when wages for some workers could be forced up by an all-knowing god without inflicting harm on any of those workers – that is, with all of the costs of the higher wages paid for by their currently too-powerful employers. Reality is also, no doubt, riddled with individual situations in which wages are, by the same standard of perfection, too high: in such situations god could force down the wages of those currently too-powerful workers and thereby improve the economic welfare of employers and consumers. Indeed, reality is riddled with all manner of imperfections that god could correct in order to increase human welfare.
But government isn’t god. Government possesses neither god’s omniscience nor god’s benevolence. If government is not to be a tool of special interests and tyrants, it must be constituted to operate, not as we would want a benevolent superior being to govern us, but as a rule-bound agent. And one rule that has repeatedly proven its worth is that prices and wages set on markets – especially on markets in which there are no government-erected barriers to the entry of either sellers or buyers – work over time far better than government-set or constrained prices and wages to improve the lives of market participants, including workers.
If minimum wages are justified as tools to be used to deal with particular instances of labor markets not working ideally, then why stop there? If government is to be trusted to obstruct the pricing mechanism for low-skilled workers, why not trust government also to obstruct the pricing mechanism for all goods and services? And if government is to be trusted with these powers to intervene into our commercial affairs, why not trust it to intervene also into our non-commercial affairs? Why not, for example, trust government to dictate what adults may and may not do consensually to each other in the privacy of their own beds? After all, I’m sure that reality is riddled with particular cases of men and women who, because of their imperfect information or weak wills, consent to sexual activities that god knows are best avoided in those particular situations. Do you trust government to be in your bedroom?
Until and unless you offer a compelling reason to believe that government officials are consistently better than are private entrepreneurs and workers at assessing all the details and trade-offs prevailing at each moment in labor markets, intoning “labor markets are imperfect” doesn’t come close to justifying minimum wages.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030