Mr. Hutcheson:
Commenting on my recent objection to minimum-wage legislation, you write that “It is quite possible to believe that the negative effects on employment are small enough that low income workers nevertheless benefit from minimum wages.”
While your proposed cost-benefit analysis of minimum wages seems on its face to be objective, in fact it isn’t. A number of flaws infect your method, but the most obvious one is this: you mistake the term “low income workers” for a relevant category with well-defined, objective boundaries. But no such category here exists.
Which persons are we to classify as “low income workers”? Are they all people currently working for $7.25 per hour or less? Or are they all people working or actively looking for work at $7.25 per hour or less? What about all people who are working for $7.50 per hour or less? Or all people who are working for $8.00 per hour or less? Or $8.10 per hour or less?
And what do you count as income? Wages only? Wages plus fringe benefits? And do you or don’t you count as “income” the value to each worker of on-the-job training and work experience?
Does your category “low income workers” include only full-time workers, or does it include also part-time workers? And how do you handle variations across jobs in the availability of overtime work?
There are no “scientific” or objective answers to these (and many other similar) questions – meaning, there is no objective boundary separating “low income workers” from other workers. Yet absent any such boundary, your cost-benefit approach fails. Define “low income workers” one way and you perhaps find that a minimum-wage hike increased the income of some of these workers by more than it decreased the income of others. Define “low income workers” in another way – a way no less plausible than the first way – and you perhaps find that a minimum-wage hike increased the income of some of these workers by less than it decreased the income of others.
Define “low income workers” any way you wish and you will find that, by pricing them out of the labor market, a minimum-wage hike decreased some of these workers’ incomes to $0.
Your attempt to create a purely ‘scientific’ assessment of minimum-wage hikes – an assessment that is objective and unsullied by subjective value judgments – fails, as all such attempts must.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
