Quotation of the Day…

by Don Boudreaux on December 9, 2021

in Myths and Fallacies, Seen and Unseen, Work

… is from page 299 of the late Paul Heyne’s 1995 article “Economics Is a Way of Thinking,” as it is reprinted in the superb 2008 collection of Heyne’s writings, “Are Economists Basically Immoral?” and Other Essays on Economics, Ethics, and Religion (Geoffrey Brennan and A.M.C. Waterman, eds.):

When governments try to “fix” prices or otherwise to constrain the terms upon which demanders and suppliers may exchange, both sides will search for other margins along which to further their goals.

DBx: Indeed. This reality is why, for example, attempts to use minimum-wage legislation to improve the well-being of low-wage workers are almost certain to fail: The money-wage component of employment contracts will certainly rise as a result of the imposition of, or hike in, a minimum wage, but there will also be corresponding, and offsetting, adjustments in other components of these employment contracts. Formal non-wage (“fringe”) benefits might be reduced, as might be informal benefits, such as supervisors’ leniency in allowing workers to make on-the-job personal phone calls or overlooking workers showing up a few minutes late for work. The number of margins on which adjustments can be made to higher minimum wages vary from job to job, but in no job is this number small.

Therefore, even if (quite contrary to fact) an unending series of econometric studies were truly to find that raising the minimum wage caused no loss of employment for low-wage workers, those studies (contrary to their inevitable advertisement) will not have disproved (sound) economists’ foundational proposition about minimum-wage legislation – namely, that by raising the cost to employers of employing low-skilled labor, minimum-wage legislation prompts employers to adjust in ways that result in harm to at least some of the workers whose welfare advocates of the legislation claim they wish to improve.

And this conclusion holds even if all employers of low-skilled workers have – also, contrary to fact – a great deal of monopsony power over these workers.

…..

Economists – and there is today a dismayingly large number of them – who argue that minimum-wage legislation inflicts no harm on low-skilled workers commit the same sort of intellectual error that is committed by biologists who claim to find evidence against the universal operation in nature of Darwinian natural selection. I suspect that what’s at work in both situations is a will to believe that is so powerful that it distorts scientific judgment.

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