≡ Menu

Wages Are Payments for Services Rendered

Here’s a letter to someone whose friend encouraged him to check out my blog:

Mr. L__:

Thanks for your e-mail.

You’re displeased with my recent blog post in which I, in making a case against minimum wages, draw an analogy with hypothetical legislation that imposes a minimum price for beer. I explain that a legislated minimum price of beer would reduce sales of relatively low-quality brews and artificially increase the demand for – and hence the prices of – higher-quality brews. The logic is straightforward: If government compels buyers of beer to pay at least, say, $12 per six pack, people who continue to drink beer will forego lower-quality brews such as Bud Light (currently selling for about $10 per six pack) and buy instead higher-quality brews such as Sierra Nevada (currently selling for about $12 per six pack).

But in your view my explanation “denigrates disadvantaged workers in comparing them to mass produced beer. Workers are not cheap beers. Workers are human beings with inherent value and dignity.”

With respect, you miss the point, which begins with this fact: when employing workers, business purchase – and workers sell – labor services. Businesses don’t buy, and workers don’t sell, workers’ dignity or humanity. My comparison, therefore, is of the value of the services offered for sale by workers whose skills are relatively low to the value of the consumption satisfaction offered for sale by brewers whose beer-quality is relatively low. And just as you as a consumer don’t purchase items that you assess to be not worth their prices, businesses don’t purchase labor services that they assess to be not worth their prices. If you as a consumer were compelled to pay at least $12 for a six-pack of beer, you would buy only beer that you believe is worth at least $12. Likewise, businesses compelled to pay at least $12 per hour for labor services employ only workers who they believe produce for them hourly output worth at least $12.

This argument isn’t about the intrinsic worth of workers as human beings; it’s about the value of the economic output that workers produce for employers. Unlike too many economically uninformed people who moralize about labor markets, no competent economist would ever be so crass as to mistake the market value of a person’s workplace skills for the intrinsic value of that worker as a person.

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

Next post:

Previous post: