Friday, November 13, 2015

A More Honest Way for Minimum Wage Advocates to State Their Position

By Don Boudreaux

At the risk of being too repetitive….
In my opinion as an economist and as a human being who believes that no one has a right to use force to extract unbargained-for benefits from anyone else, a sufficient reason to oppose the minimum wage is that it prices some people out of jobs that they would otherwise have voluntarily chosen to take.  The number of people priced out of jobs is, for me, irrelevant to this assessment (although, of course, the greater the number of people priced out of jobs by the minimum wage, the worse is the magnitude of its undesirable and unwarranted effects).
Even if only one person is priced out of a job by the minimum wage (or more precisely, even if only one person is priced out of the job that he or she would have chosen to take in the absence of the minimum wage), I have sufficient reason to oppose it.

Moreover, I believe that most people – or, at least, most Americans – share my normative view.  The reason for this belief is that nearly all politicians and popular pundits in the U.S. who endorse the minimum wage insist that it has no ill consequences for low-skilled workers.  I have never heard the likes of Barack Obama, Hillary Clinton, Bernie Sanders, Andrew Cuomo, Jerry Brown, or Robert Reich ever, when pleading for a higher minimum wage, say something akin to“Many of you low-skilled workers will get a raise but some of you will be priced out of your preferred jobs.  Indeed, some of you low-skilled workers are likely actually to be cast indefinitely into the ranks of the unemployed.  But worry not, I’m guessing that each of you prefers to have a higher chance of being indefinitely unemployed because this higher chance of being unemployed comes along with a higher wage in the event that you do find jobs.”
At least the above announcement would be more honest than is the typical announcement that portrays the minimum wage either as a miraculous free lunch or as a policy the full costs of which are borne exclusively by people other than low-skilled workers.  [By the way, the above announcement would be even more honest if the pol or pundit making it would add that the increased prospects of being rendered unemployed by the minimum wage are not randomly distributed.  In fact, those workers who are disproportionately likely to be rendered unemployed are workers who are least-attractive at the higher wage to employers (workers, say, such as inner-city minority single moms with neither high-school diplomas nor reliable means of personal transportation) while those workers who are disproportionately likely to remain employed at the higher wage are the ones who are most-attractive at the higher wage to employers (workers, say, such as retirees with long work experience who are drawn out of retirement by the higher minimum wage).]
If most Americans did not share my normative view – that is, if most Americans believe it to be just dandy if government arbitrarily raises the wages of some low-skilled workers with a policy that is admitted to arbitrarily render other low-skilled workers unemployable – we’d likely have no evidence of reluctance by pro-minimum-wage pols and pundits to make this admission publicly.
Further, no matter what are the relative numbers of workers earning higher wages compared to the number of workers earning $0 per hour because they are now unemployed – no matter what is the aggregate size of the income gains enjoyed by the former, fortunate group of workers compared to the size of the income losses suffered by the latter, unfortunate group of workers – the economy as a whole is made poorer.  Total output declines.  The pie is made smaller.  And someone or some group must bear this loss.
How can the economic pie here not be made smaller?  Some people who would otherwise be voluntarily employed and producing are instead involuntarily unemployed and not producing.  That this diminution in total output likely remains undetectable in the quantitative data in no way means that this diminution isn’t real.  Only the most naive empiricist economist – someone who, in effect, believes that the economy is only that which is quantitatively detectable by human students of the economy – would deny that a policy that causes some resources that would otherwise be productively employed to be unemployed does not shrink total output.*
A final note: many people – foe and friend – ask me why I spend so much energy and pixels on the minimum wage.  My reasons are four:
(1) politicians and ‘activists’ spend lots of energy defending the minimum wage; such efforts warrant responses;
(2) the ill-effects of the minimum-wage are especially pernicious; the harm it inflicts is concentrated on those individuals who can least afford to be harmed, and this harm is largely invisible to eyes not equipped with a clear economics lens; this combination makes the minimum wage a policy tool especially useful to those who would unjustly steal benefits for themselves from others;
(3) discussing the minimum wage is an excellent way to teach basic economics because those who support the minimum wage commit an unusually large number of fallacies – economic, methodological, logical, philosophical, factual, statistical, and historical – when mustering their arguments in support of this policy; and
(4) if proponents of the minimum wage get away with their fallacies, these proponents will not only prop up a policy that harms society’s most-vulnerable individuals, but they will also help to spread the very dangerous fallacy that market prices are arbitrary figures that can be forced up or down by government diktat with no, or only minimal, unintended and unseen negative consequences.  (In short, here, to expose the fallacies spread by minimum-wage proponents is to defend scientific economics from man-in-the-street superstitions masquerading as scientific economics.)
* It’s possible that a higher minimum wage can, by causing many minimum-wage jobs to be more onerous than they would otherwise be for the workers who hold them, cause total output to rise.  Any such increase in output, however, still represents a diminution of total economic prosperity because it is the result of the exertion of super-optimal work effort by low-skilled workers.
The above originally appeared at Cafe Hayek.

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