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Thought Experiments About the Minimum Wage

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Here’s a letter to a high-school senior in Wisconsin who (I boast) reads Café Hayek:

Mr. S___:

Thanks for your e-mail.

I share your negative opinion of Pres. Biden’s proposal to more than double the national minimum wage to $15 per hour. And I’m unsurprised that most of your classmates disagree with you: Raising the minimum wage does seem to most people to be an obvious means of increasing low-paid workers’ incomes.

In a follow-up e-mail I’ll send you links both to recent empirical research on the minimum wage as well as to some excellent short economic analyses of this policy. But here let me suggest two thought experiments for you to put to your classmates.

I’m sure that many of your classmates earn income by doing odd-jobs such as babysitting, mowing lawns, and shoveling snow. So ask them what they think would happen if government forced them to double the amounts that they charge to do these jobs. Do your classmates think that parents with young children will continue to hire as many hours of babysitting at (say) $30 per hour as they hire at $15 per hour? Will homeowners’ willingness to hire neighborhood kids to mow lawns be unchanged if the price of getting a lawn mown is forced up from (say) $25 to $50? Will neighbors be just as willing to pay (say) $40 to have snow shoveled off of their driveways as they are when they must pay only $20?

Hopefully these questions will cause your classmates to see that a forced increase in the prices they must charge to sell their labor will cause the quantity of labor that they’re able to sell to fall. (I encourage you to emphasize to your classmates that raising the minimum wage is government’s way of forcing low-skilled workers to raise the prices that they charge for their labor.)

But I predict that some of your classmates will find the above questions unpersuasive. To these classmates you can put some follow-up questions.

Take note of items that they purchase with their own money – items such as bottled water, meals at fast-food restaurants, movie-theater tickets (pre-Covid, of course), jeans, headphones and other electronic items. Then ask them how they’d react if the prices of these items were to double. Would they buy as many bottles of water at $3 per bottle as they buy at $1.50 per bottle? Would they go to the movies just as often if the ticket price rose from $10 to $20? Would they be just as willing to buy a pair of jeans priced at $250 as they are when it’s priced at $125?

Alas, some classmates will intransigently insist that their willingness to buy would remain unchanged. But deep down they’ll know they’re not telling the truth – and they’ll know that you know it.

Good luck!

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

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