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Get Real About the Motivation for Minimum Wages

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Reading Pierre Lemieux’s EconLog blog post “Trade and Force [2]” offers a further reason for dismissing the now-common assertion that government-imposed minimum wages are justified as a means of correcting the ill-consequences of monopsony power in labor markets. Specifically, in this post Pierre mentions the A.F.L.-C.I.O.’s insistence that any new NAFTA deal contain a minimum-wage requirement for Mexican workers who produce goods for export to the United States.

No one old enough to crawl out of a crib believes that this labor union has the best interest of Mexican workers at heart in calling for this minimum-wage requirement. Clearly, this minimum-wage requirement is a devious means of protecting American firms and workers from the competition of Mexican producers who, compared to their American competitors, produce their outputs using a large amount of low-wage workers relative to capital.

The anti-competitive motivation for this minimum-wage requirement is identical to the anti-competitive motivation that fueled the 1938 legislation that remains today the source of the federal minimum wage in the U.S [3]. The fact that in both cases the minimum wage artificially raises the pay of relatively highly paid workers by artificially reducing the job opportunities – and pay – of relatively lower-paid workers obviously doesn’t disturb the thin consciences of labor-union leaders or of those members of Congress who support minimum-wage requirements.

So I ask rhetorically: does anyone really believe that leaders of U.S. labor unions – and their Congressional allies – call for this minimum-wage requirement in a renegotiated NAFTA because they suspect that Mexican labor markets are filled with monopsony power? (If you really believe that concerns about monopsony power in Mexico are motivating these Americans, I own and have in my possession the original Mona Lisa that I’ll sell to you at a splendiferously low price.)

And if labor-union leaders and their Congressional allies are willing to impose minimum-wage requirements in the clearly anti-competitive and anti-low-paid-worker way that they call for in the NAFTA case, why in the world would anyone think that these same people slough off their greed and cronyism and replace it with scientific concerns with monopsony power when the minimum-wage in discussion is one that applies only to workers in the United States?