Tuesday, June 14, 2016

A Pro Minimum-Wage Professor Believes in Miracles

By Don Boudreaux
An e-mail exchange this morning with a pro-minimum-wage economics professor who not only wishes to remain anonymous but who asks that I not even quote him directly prompts the following thought about minimum-wage proponents’ belief in miracles.…..
Workers with a great deal of work experience earn, on average, much higher wages than do workers with no or only very little work experience.  Given this reality, suppose that Congress, with the support of President Clump, enacts the following statute:
No one with less than five years of work experience is allowed to be employed for pay.
At the signing ceremony for this diktat, Pres. Clump triumphantly proclaims that“Contrary to the predictions of naysayers and free-market ideologues, this legislation will cause no one to lose a job.  Instead, it will simply give to all workers – even to 16 year olds! – a minimum of five years of work experience.  There is nothing that a powerful and determined government with good intentions cannot do!”
Immediately, however, everyone reacts with astonishment at the stupidity of Congress and the president.  Even editorialists and columnists for the New York Times observe that, as one especially famous columnist observes, “Many workers simply don’t have five years of work experience.  They will remain unemployed.”
In response to this surprising opposition from their “Progressive” friends, Congress and Pres. Clump add the following amendment to the above legislation:
Each and every worker in America is hereby decreed to possess at least five years of work experience.
Editorialists and columnists for the New York Times breathe a sigh of relief and declare that this amendment ensures that all is now right with this legislation!  It will work only good for American workers!
In contrast, editorialists for more skeptical outlets, such as the Wall Street Journaland the Orange County Register remain flabbergasted that anyone believes in such miracle-working.
If you, dear Cafe patron, think the above hypothetical is silly, recognize that minimum-wage legislation is a very similar attempt by government to work a miracle through legislative decree.  In markets in which workers are free to quit and to seek out new jobs, and in which employers – long-established and just starting – are largely free to compete for workers, each worker is worth to employers what that worker is worth.  That is, in such markets, each worker’s hourly worth to employers equals the value that he or she adds each hour to his or her employer’s bottom line.  A worker whose skills and other attributes enable him to add at most only $7.00 per hour to any employer’s revenues will not be hired at an hourly wage above $7.00 per hour.  All such workers will remain unemployed (in the formal sector) today at the current national minimum wage in the U.S. of $7.25 per hour.
Supporters of the minimum wage who insist that it destroys no employment opportunities for any workers believe in the following miracle: when government decrees that each worker shall be paid at least $7.25 per hour, all workers are thereby miraculously infused with the skills and work-experience necessary for each of them to produce for employers at least $7.25 per hour.
The only difference separating minimum-wage legislation from the above hypothetical diktat lies in the wording of the incantations.  Minimum-wage statutes and regulations specify the minimum that each worker must be paid, while the above hypothetical diktat specifies the minimum amount of experience (a good proxy for skill) that each worker must possess.  Both instances of sorcery pretend to miraculously alter the same reality – namely, the productivity of low-skilled workers.
The above originally appeared at Cafe Hayek.

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