True Cost as Compared to What?

Don Boudreaux writes to the Los Angeles Times:

Fashion critic Booth Moore is clearly moved by Andrew Morgan’s new documentary, “The True Cost,” which highlights the terrible work conditions and pay in third-world factories that manufacture the inexpensive clothing now enjoyed by denizens of rich countries (“’The True Cost’ documentary tallies global effect of cheap clothes,” May 28).  Yet not once in her review of “The True Cost” does Ms. Moore ask the key question that is asked by those scholars who, above all others, think most deeply and consistently about true costs: economists.  That question is “As compared to what?”

Compared to work conditions and pay today in rich countries such as the U.S. and Sweden, work conditions and pay today in developing countries are indeed awful.  But despite being the one comparison that apparently is central to the film, this comparison is inappropriate and misleading.  Instead, the relevant comparison is of third-world workers’ current pay and work conditions with these workers’ realistic alternatives.  The fact that so many third-world workers willingly endure the harsh conditions and low pay that now prevail in third-world garment factories is powerful evidence that these workers’ alternatives are even worse.  Therefore, if Mr. Morgan and other activists succeed in their efforts to reduce the rich-world’s demand for clothing produced in the third world, many third-world factory workers will personally suffer the true cost of rich-world-activists’ economically ignorant concern for them – namely, being obliged to toil at jobs that pay even less and in conditions that are even dirtier and more dangerous.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

The above originally appeared at Cafe Hayek.

Robert Reich Gets Only One Thing Right About the Minimum Wage

By Donald Boudreaux

In one of his recent videos pushing a $15 per hour national minimum wage, former U.S. Secretary of Labor Robert Reich got one thing (and only one thing) right: he noted – starting around the 1:50 mark – that “[s]tudies have also shown that when the minimum is raised, more people are brought into the pool of potential employees, so employers have more choice of whom to hire.”

As I discussed in this earlier post, Reich is confused by this reality (although he’s unaware of his confusion).  One confusion of Reich’s that I’ve not yet discussed until now is his failure to draw from this reality the most obvious correct conclusion.  That correct conclusion is this one: the higher the minimum wage, the greater is the scope and incentive for employers, when they are choosing which low-skilled workers to hire and to retain, (1) to use economically irrelevant criteria (such as workers’ race, sex, or sexual preferences), and (2) to give excessive weight to certain potentially economically relevant criteria (such as a job-applicant’s work experience and whether or not that applicant is a single parent).