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Bonus Quotation of the Day…

… is from page 138 of the 11th (2006) edition of one of greatest economics textbooks of all time: Paul Heyne’s, Peter Boettke’s, and David Prychitko’s The Economic Way of Thinking (original emphasis):

The traditional (some would say notorious) hostility of most economists to a high legal minimum wage is rooted in their conviction that supply curves slope upward to the right and demand curves slope downward. The number of unskilled persons willing to supply their labor services is not a constant but increases when the wage rate rises, so more people will be competing for the available jobs when the prevailing wage is higher. And at higher wages, employers of unskilled workers will find all sorts of ways to economize on the help the “need.”

DBx: Indeed.

I regard an economist’s rejection, or even skepticism, of this line of reasoning to be a sure sign that that ‘economist’ is a quack.

Ah, but it’s an empirical question!” comes the inevitable, faux-scientific retort. To which I say: Of course it is, as ultimately are all questions about reality. But here the germane reality – a reality confirmed by overwhelming empirical evidence – is that the less attractive to someone is an option, the weaker is that person’s willingness to pursue that option. Because there’s no good reason to suppose that this empirical reality fails to hold for employers of low-skilled workers, we can conclude confidently that a government-imposed minimum wage above the wage that would otherwise prevail on the market reduces the employment options of low-skilled workers.

The most obvious way, of course, for employers to adjust to a minimum wage is simply to employ fewer workers. But notice above Heyne’s, Boettke’s, and Prychitko’s careful wording: imposing or raising a minimum wage means that “employers of unskilled workers will find all sorts of ways to economize on the help they ‘need.'” That is, rather than prompting employers to employ fewer low-skilled workers, minimum wages might instead, or in addition, also prompt employers to reduce low-skilled workers’ fringe benefits (including ‘informal’ fringe benefits such as frequently cleaned break rooms), or to work these employees harder.

For any number of reasons it might well be an interesting empirical question how, in a particular time and place, the employment consequences of a certain-size increase in the minimum wage divide themselves into, on one hand, job losses, and, on the other hand, worse jobs. To discover such facts requires careful empirical investigation. But no such investigation – even one that purports to find that minimum wages cause no job losses – should be interpreted as evidence that minimum wages do not harm at least some, and perhaps many, of the very workers who minimum-wage supporters assert they wish to help. Any such interpretation is the economic equivalent of a physicist being misled by some observation to the conclusion that the law of gravity sometimes and in some places mysteriously ceases to operate.

And please, no comments about how monopsony-power might cause minimum wages to work as advertised. For the monopsony-power exception to the standard economic analysis of the employment consequences of minimum wages to hold, a necessary (although not sufficient) condition would be that employers of low-skilled workers have available to them only one way of reacting to minimum wages – namely, changing the quantity of low-skilled labor they employ. But because in reality employers with monopsony power can, like all employers, respond to minimum wages by adjusting on a variety of different margins, the textbook ‘monopsony-power exception’ is practically irrelevant.