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No Subsidies Needed

Here’s a letter to the Wall Street Journal:

Larry Harris is absolutely correct that a strong U.S. dollar, far from impoverishing us, raises our prosperity (“A Strong Dollar Is Good for America,” Nov. 19). But I disagree with his suggestion that a strong-dollar policy should be accompanied by government subsidies paid to firms that employ low-skilled workers.

The market has a built-in feature that encourages firms to employ low-skilled workers. In fact, it’s the very same feature that encourages firms to employ high-skilled workers – namely, the practice of paying workers wages no higher than the value of what they produce. Workers who don’t demand wages in excess of the value of their outputs are all profitable to employ regardless of their skills levels. Subsidies are no more needed to persuade Motel 6 to employ a maid at $7.50 per hour if her hourly output is worth more than $7.50 than they are needed to persuade the New Orleans Saints to employ quarterback Drew Brees at $12,000 per hour if his hourly output is worth more than $12,000.

Unfortunately, the minimum wage discriminatorily forces the lowest-skilled workers amongst us to demand wages higher than the value of these workers’ outputs. But clearly the best means of eliminating any resulting unemployment is to abolish the minimum wage. It would make no more sense for government to pay, say, manufacturing firms to hire workers into jobs at which these workers aren’t adequately skilled than it would make for government to pay the New Orleans Saints to hire me to quarterback their team.

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