Tuesday, February 25, 2014

Two More Reasons Raising the Minimum Wage is a Bad Idea

Mark Perry writes:
Upon reflecting about the minimum wage law government-mandated wage floor that guarantees reduced employment opportunities for America’s teenagers and low-skilled workers during a conference at AEI today titled “Minimum wage or earned income tax credit: Which helps the poor more?” I thought of two reasons (in addition to many others) that a mandated price control in the form of a minimum is a bad idea:
1. Even advocates of the minimum wage can never provide any convincing, solid economic reasoning to support why a specific minimum wage is the “correct” or “optimal” mandated wage. One panelist today, a minimum wage proponent who signed this letter calling for a minimum wage hike to $10.10 per hour by 2016, expressed concern that $10.10 might be too high and he might be more comfortable with a mandated wage closer to $9 per hour.
But where does a minimum wage of $10.10 (or $9) per hour come from? Economic theory? Economic reasoning? Economic logic? Regression analysis? No. It comes from….. well it comes from….. OK, to be really honest, it’s just a made up number by politicians, with no basis in economic reality. Economists who are minimum wage proponents will try to justify the arbitrary number “picked from the air” by politicians and talk about inflation-adjusted comparisons to previous years or decades, like the inflation-adjusted high of a $10.66 per hour (in 2013 dollars) minimum wage in 1968. But why is that the “right” wage and the “right” year to use for comparison? It’s just another arbitrary minimum wage from another era.
Bottom Line: Minimum wage proponents can never satisfactorily answer the questions: Why is $10.10 the “correct” or “optimal” minimum wage? How did you arrive at $10.10 hour – what analysis was used? How do you know $10.10 per hour is the “optimal” minimum wage and not  $9.95, $10.15, $10.50, $8.50, $12.50, $4.00, $0.00 or $85 per hour? Does $10.10 per hour accurately account for all of the costs (reduced employment opportunities) and benefits (higher wages for some) of that specific minimum wage, and are those net benefits greater than all other possible minimum wages?
The very fact that minimum wages are ultimate completely arbitrary, and not based on any convincing, sound economic analysis, means they cannot really be taken seriously. Or at the very least, because they are mandated price controls that deviate from market-determined wages, artificially-determined minimum wages have to be distortionary.
2. Let’s suspend economic reality for a moment and assume that politicians (and some economists) can determine some optimal federal minimum wage, e.g. $10.10 per hour, that will universally apply to all 50 states and the thousands of cities within those. How can that federally-mandated minimum wage be the “correct” or “optimal” minimum wage for every labor market in all 50 states? Because of the wide variation in the cost of living across the United States, there is no way that a single minimum wage can possibly be optimal in every labor market in the country.


  1. That is precisely the Achilles heel of minimum wage arguments. To admit that the minimum wage might ever be too high is to admit the validity of the arguments against it.

    That the panelist conceded $10.10 is extraordinary. He should immediately have been challenged to explain why $9 would not also be too high.

  2. The descent of economic science into the realm of left wing intellectual quackery is very sad and dispiriting. 40 years ago 90% of economists believed that minimum wage laws increased unemployment among young and unskilled workers. Duh! In other words, they understood that, like any public policy, minimum wage laws have costs as well as benefits. Now, after several generations of economists have been indoctrinated by 60's era left wing ideologues masquerading as economics professors, only one half of economists believe this obvious truth.

    Economics is devolving back to it's ancient status as a metaphysical pseudoscience. I think this is symptomatic of the pervasive disintegration of Western Civilization and it's traditional values of individual liberty, rule of law and rationalism. This is what happens when you fundamentally misconstrue the nature of a science and try to pretend it is no different than physics or chemistry. You end up in an epistemological quagmire, a Kafkaesque absurdity where up is down, night is day and wrong is right.

  3. Why So Little Media Coverage of How the Rich Are Becoming Richer and the Middle Class Wages are Being Squeezed?

    I’m seriously behind in highlighting an article by Ryan Grim and Mark Gongloff on one of the key mechanisms by which CEO pay has risen to stratospheric levels: cronyism and backscratching among board members, many of whom are also CEOs. While this behavior is well understood by most people who know the workings of the top levels of large corporations, the general public is largely in the dark.

    As robber baron Jay Gould said, “I can hire one half of the working class to kill the other half.” Today’s uber rich have done Gould one better by getting the lower orders doing their dirty work by undermining each other for free.