In a study published earlier this month, “The Effects on Employment and Family Income of Increasing the Federal Minimum Wage,” the Congressional Budget Office (CBO) estimated that a gradual increase of the federal minimum wage to $15 an hour by 2025 (from the current $7.25) would boost the wages of 17 million workers at the cost of 1.3 million pushed out of employment. (Lower increases in the minimum wage would have similar but reduced effects.) The reaction of Rep. Bobby Scott (D., Va.), as reported by the Wall Street Journal (“$15 Minimum Wage Would Bring Mixed Fortunes for U.S. Workers,” July 8, 2019) was typical of what many if not most minimum wage advocates believe:
If you look at the whole report, there’s no question there are significant benefits for a massive number of people that far outweigh whatever the cost might be.
This is a most remarkable belief. It means that the state should purposely intervene to harm some citizens in order to favor others. If the state represents all citizens equally, how could this discrimination be justified?
One common answer is that the alternative of non-intervention would similarly discriminate against the other group—in favor of the 1.3 million against the 17 million. However, this idea that non-intervention is merely another form of intervention is difficult to defend in a free society. It assigns the same value to a constraint generated by the equal liberty of everybody, and a constraint imposed by the power of some people. It negates the moral difference between “I cannot earn more because no consumer wants to pay more for what I can produce,” and “I cannot earn more because some group of individuals have decided to forbid anybody to pay me a wage I am willing to accept (instead of being unemployed).”
Interestingly, minimum wages don’t even satisfy the criterion of welfare economics (and cost-benefit analysis) according to which imposing costs on some individuals in order to generate benefits for others is justified if the benefits are greater than the costs and the gainers could theoretically compensate the losers and still be better off. Since minimum wages create some unemployment, it necessarily reduces the total value of production, which implies that some individuals must be harmed. In the case under consideration, the CBO estimates that American families would incur a net loss of $8.7 billion in real income (in 2018 dollars). Real individuals must shoulder this loss.
At a less philosophical but related level, what we know about economics contradicts the idea that economic efficiency could be improved by politicians and government bureaucrats fixing the minimum (or the maximum) level of wages or other prices.
Even if the minimum wage increased the total value of production, it would still be a strange belief to view it as a desirable public policy. For it amounts to accepting that the state actively discriminate against some of its subjects (or supposed citizens). It amounts to accepting what Anthony de Jasay called “the adversarial state,” which, instead of being an impartial arbiter, actively takes sides among its subjects (see my Econlib review of his book The State).
One way to argue with the 1.3 million American workers unemployed because of the minimum wage increase is to tell them something like the following. “Sure, you are unemployed in order that 17 millions of your comrades earn more. But this is part of your cost of living in society, and you do obtain overall net benefits from your participation in the social contract. In this case, you are the ones harmed, but in other cases—like, say, Medicaid or public education for your children—you win.”
This contractarian argument, however, does not satisfy the sort of (tacit) social contract that would be beneficial to everybody as theorized by James Buchanan. It is extremely doubtful that a unanimous social contract can be seriously invoked to defend the minimum wage. Being denied the opportunity to participate in the labor market, even if one’s wage would otherwise be low, is a major handicap, both financially and psychologically. And this handicap hurts the least productive and flexible workers (this is why they are the ones to lose their jobs), those who are already at the bottom of the social ladder and are far from overprivileged by the status quo. As a means of redistribution, the minimum wage often amounts to taking from the poorest in order to give to the less poor. (I say “often” because many minimum wage earners, like second earners or children, live in non-poor families.) How can we can imagine everybody consenting to a social contract allowing that?
Even if one supports some state redistribution (or social insurance) in some circumstances (as Buchanan did), the minimum wage exemplifies a most coercive and arbitrarily form of redistribution.
READER COMMENTS
MarkW
Jul 17 2019 at 11:57am
I say “often” because many minimum wage earners, like second earners or children, live in non-poor families.
Yes, and a $15 minimum would make this worse. Right now, there are a lot of smart, responsible, future-high-earning high-school and university students not working because current basic jobs pay less than their reservation wage. But boost the minimum and some current workers in those jobs will be replaced by higher-quality workers who are currently on the sidelines.
Winslow P. Kelpfroth
Jul 17 2019 at 12:24pm
Take the argument a step further. Suppose the 17 million gainers are predominately white and the 1.3 million now unemployed are predominately black. I don’t think this would fly well in the present political environment, and deservedly so.
nobody.really
Jul 17 2019 at 2:16pm
Interesting thought.
In the US, black people are over-represented among the unemployed, so I’d expect that the 1.3 million newly unemployed would include a disproportionate share of black people. Then again, black people are also over-represented among those currently earning the minimum wage, so they might benefit disproportionately, too.
More generally, any time a wage is high enough to attract more than enough applicants, employers must choose among applicants–and some employers will choose on the basis of race, sex, age, ethnicity, religion, marital status, etc.
Doug
Jul 22 2019 at 1:23pm
Why would this reaction be deserved? Why should an economic policy decision depend on the relative impacts on races? It should depend only on the economic impacts to individuals.
nobody.really
Jul 17 2019 at 2:03pm
1: So Lemieux opposes police and the military?
I’m a huge, bulking, well-armed fighter. I could be earning a fortune providing security for people in my town—or, in the alternative, as a mugger. But damn it, local citizens keep compelling everyone to pay taxes to support the police department. The police depress the amount of raging lawlessness in my town, which has destroyed both my security business and my mugging business. How dare they intervene in the market like that?
Moral: GOVERNMENT ACTIONS CONSTANTLY ALTER MARKETS. Markets are social constructs. That doesn’t mean that the results of markets are arbitrary once you postulate a given level of government intervention. But it does mean that governments can, and inevitably do, alter their level of intervention—through the creation of an artificial level of law and order, to take the most obvious example–and those interventions alter the market results.
2: I understand that some people hold heterodox macroeconomic views. But if Lemieux opposes government policies that increase unemployment, I must assume he would require the Fed to drop interest rates to zero and expend the money supply as far as it will go, inflation be damned—because any other policy would seem to result in some reduction in employment.
Moral: The unemployment rate has long been just one more variable in public policy. We try to reduce unemployment, but not to the exclusion of all other considerations. When a town chooses to consolidate two school districts, one of the superintendents is likely to lose her job. Would Limieux oppose such a policy? If not, then I don’t know why we would have some different sensibility where the minimum wage is concerned.
3: That said, I agree that a minimum wage law reflects a second-best solution to the problem of wealth distribution. And as the disparity between urban and rural America grows, it becomes ever harder to justify a uniform minimum wage.
I’d much prefer a guaranteed minimum income. But if you can’t get the optimal policy, sometimes the second-best is as good as it gets.
andy
Jul 21 2019 at 2:47am
No. If the government mandates that everybody has to wake up at 8am, it’s an intervention. If the government doesn’t mandate (or even guarantees that you just cannot willy-nilly go and force somebody to wake up at 8), than it’s not an intervention. Literally. Everybody can wake up anytime they wish.
They may decide to wake up at 8 which may coincide with the government wish. Or they may not. Government guaranteeing rights and liberty is not forcing anyone to do anything nor altering the markets.
I think you missed the second part of the sentence: ‘it’s difficult to defend in a free society’. If you start with the premise that people are a herd of cows, anything the government does leads to ‘some result’ (more-or-less predictable) and that is ‘altering the environment’. If you start with the idea that each person should be respected (i.e. free society), than obviously there are decisions that support the mutual respect (i.e. chasing thieves) and there are decisions that do not (minimum wage – the government fails to respect liberty of contract).
Government does not constantly alter markets. Chasing thieves is not ‘altering markets’ as stopping people from willfuly making noise at your home at 6am is not ‘imposing government will on people as to when they should wake up’.
Pierre Lemieux
Jul 21 2019 at 11:24pm
@nobody.really: A few quick comments in the order of your own comments:
The provision of the public good of security can be explained and justified either by spontaneously evolved institutions à la Hayek or by a unanimous social contract à la Buchanan. The latter could include side payments to gain the consent of the thugs that would be disadvantaged in a free and civilized society. (On Buchanan, see my post and the link there.)
2. Of course, “government actions constantly alter markets.” The question is which of these actions are justified–as you seem to admit in a later comment.
3. I don’t think that a policy designed to maximize employment can be justified, as I explained in my Who Needs Jobs? (Palgrave Macmillan, 2014). In fact, I would suggest that no serious economist or political philosopher can favor such a policy, for it amounts to maximizing costs. If that were not true, banning agricultural equipment and computers or instituting slavery would be desirable public policies.
nobody.really
Jul 22 2019 at 12:27am
I believe Lemieux and I agree (even if andy does not) that–
1: Government actions constantly alter markets, so
2: The real dispute pertains to which actions are desirable.
And on this point, people differ–though some actions (as in actions to maintain law and security) seem to meet with greater support than others. Thus, when government chooses not to intervene (say, when police stood aside as black people were brutalized in the Jim Crow South), this is NOT some kind of neutral choice. In short, whatever harm you think intervention has, it can also arise from non-intervention.
Alan Goldhammer
Jul 17 2019 at 2:09pm
I wonder if the CBO report is based more on conjecture that facts. Most of the minimum wage jobs that I’m aware of are resistant to automation and are in service industries such as fast food, the ubiquitous coffee shops of various brands, lawn & yard work, maid services both home and institutional, etc. Are significant numbers of these people going to lose their jobs because of a higher minimum wage?
I would want to see a demographic breakdown of the minimum wage jobs and an attempt to identify those who are at risk of losing jobs because of a hike in the MW. I don’t think the CBO report is convincing otherwise. Of course I’m not an economist and perhaps there is something I’m missing other than the standard economic argument. Data please!
nobody.really
Jul 17 2019 at 2:18pm
Bureau of Labor Statistics, Characteristics of minimum wage workers, 2017.
It’s a start….
Johnson85
Jul 17 2019 at 2:41pm
With respect to fast food, I know I have seen some data. But it’s mostly data on how much of the costs are labor and what it would mean for prices. STill hard to predict how demand will drop in response to higher prices, but at least it gives you the lower range on the price increases. Still leaves the question on all the non-labor inputs that will go up because of increased minimum wages.
That said, if you are looking at fast food and labor costs increasing say
Dylan
Jul 17 2019 at 2:52pm
There’s a good EconTalk episode from a few months ago with Jacob Vigdor on the Seattle Minimum Wage, and they go over data that would help to answer most of those questions I think, albeit at a local, not national, level.
On the restaurant side of things, they were seeing things like more fast causal restaurants opening in the treatment area compared to more full service restaurants in the control. Also things like kiosk ordering at fast food places. I think both trends were underway already, but have accelerated in areas with the higher minimum wage.
Dave Smith
Jul 17 2019 at 4:00pm
Your view is conjecture as well. Who is to say what might be replaced with automation? I ate self service yogurt this weekend. The place was full of patrons and only one employee. Contrast that with a normal ice cream shop with several employees. Min wage could push toward self service. Lawn service too. At 30 bucks I pay to have someone mow my lawn once every two weeks. At 50 I might have them mow once every three weeks. Or I might mow myself.
John Merritt
Jul 17 2019 at 10:29pm
One might be surprised to learn that many of those “automatically resistant” jobs are being automated. At low price dining establishments menus are being changed and tablet ordering are being introduced to reduce employee head counts. Hotels are offering discounts to waive daily maid services.
Everything has an economic value. The minimum wage tries to bend a rule that will self correct to eliminate the artificial thumb on the scale.
The minimum wage is simply a vote buying device and union fund raiser. Some union contracts are based on minimum wage plus. Think unions SEIU which owns a big bunch government employees that already make more than minimum wage.
The minimum wage helping the poor is a scam.
Jon Murphy
Jul 18 2019 at 10:27am
The Two Laws of Demand tell us yes. The First, that quantity demanded is generally inverse to price, says as the minimum wage rises, quantity demanded will fall, so in the near term at the very least, we will see fewer jobs (or whatever margin is being adjusted along).
The 2nd Law of Demand states that as long as the relative price of a good remains high, the more elastic (that is, more sensitive to prices) the buyers will become. If real minimum wage remains high, employers will look for more and more subsitutes. So, while there may not be much automation now, there will be in the future (this latter point us not discussed when proposals are made to peg the minimum wage to inflation Or some other metric).
MarkW
Jul 19 2019 at 10:47am
Most of the minimum wage jobs that I’m aware of are resistant to automation
I tend to agree in the sense that I don’t think you’re going to see restaurants with kitchens full of robots and tables being served by robot waiters. But that doesn’t mean that there wouldn’t be major changes in response to a $15 minimum. In restaurants, that might include:
Greater use of self-service (with ordering at the counter — or by app or kiosk — moving higher up the value chain)
Greater use of off-site, factory produced ingredients and less on-site preparation.
Greater demands for efficiency from workers (which employers will be able to do because jobs for low-skilled workers will become harder to find). Also a much more careful managing of scheduled hours and greater tendency to send employees home (without pay) when the restaurant is not busy.
An overall shrinkage of the industry. Americans used to eat out much less frequently than they do now. If restaurant prices go up enough, there’s no reason people can’t go back to cooking more and carrying sack lunches.
In hotels and motels, look for an end to daily maid service (or a surcharge for it) and perhaps free breakfast and other services they now provide. Also expect greater switch to vacation rentals (that don’t offer any in-person services at all — and which would be fine with me. I don’t need any of those service, don’t want to pay for them, and would rather be left in peace when I’m traveling, which is why we do rentals whenever possible).
Benjamin Cole
Jul 17 2019 at 8:52pm
The case against minimum wage laws would be strengthened if there were a national referendum that people have the right to be pushcart, motorcycle sidecar, or truck vendors.
Right now, people are actively criminalized if they try to start their own businesses.
There should be an abolition of property zoning including zoning for retail.
Talking about the minimum wage out of out-of-context is is not really productive.
Reminds me of those lopsided arguments against rent control which do not mention property zoning.
Floccina
Jul 18 2019 at 9:16am
+1 On Government stopping what it is doing to our lowest earners before it start to do more for our lower earners.
I also support at least testing an NIT and or hourly wage subsidy in place of a minimum wage + SNAP + TANF etc.
Diane Merriam
Jul 22 2019 at 10:25am
The NIT, in the form of a guaranteed cash stipend, has been tried in many places in many countries. It has never worked. In fact, none of the experiments even ran all the way to their conclusion before they were canceled or announced ended.
Pierre Lemieux
Jul 21 2019 at 10:08pm
@Benjamin Cole: If I understand you well (despite your enigmatic first sentence), you are saying that it is strange to criticize the minimum wage in a context where its beneficiaries and its victims are prevented by the state itself from freely earning a living in multiple other ways. I certainly agree that a general liberation of workers and entrepreneurs from the constraints that the state imposes on them (including the minimum wage among other constraints) would be preferable to merely abolishing the minimum wage (or preventing it from doubling). But you certainly do not mean that one should not criticize one oppression because its victims and its beneficiaries are oppressed in many other ways.
One could argue that the state should compensate the people it oppresses by oppressing others (forcing them to pay) and then compensate the latter by forcing the former to pay. This is the sort of churning or redistributive rat race that many economists, including Anthony de Jasay, have been arguing against.
Phil H
Jul 17 2019 at 10:18pm
“It means that the state should purposely intervene to harm some citizens in order to favor others. If the state represents all citizens equally, how could this discrimination be justified?”
“…instead of being an impartial arbiter, actively takes sides among its subjects.”
The analysis of the minimum wage may be right, but these arguments are nonsense. Of course the state takes sides. It taxes some and pays welfare to others. It locks up criminals and sometimes compensates the victims of crime. It designs industrial policy that support certain industries at the expense of others. It puts one party in power and throws the other party out.
The idea that a state does not or should make decisions between people is just silly strawmanning. It’s not a part of standard democratic theory.
Pierre Lemieux
Jul 18 2019 at 6:37am
No, it’s your statement that is, if not silly, at least ignorant. It properly belongs to totalitarian democratic theory, not to liberal democratic theory. Take de Jasay as an antidote. If you are scared of reading him (granted that it is difficult reading), Hayek might even do as a milder antidote. Buchanan would give you a glance of the idea at “the constitutional stage.” John Hicks (see https://stageeconlib.wpengine.com/library/Columns/y2017/Lemieuxbalderdash.html for the citation) comes close to the same idea:
nobody.really
Jul 18 2019 at 9:10am
If it takes totalitarian democracy to justify permitting the state to discriminate between criminals and other citizens, then sign me up.
And sign up Hayek. He recommended a guaranteed minimum income. But in making that recommendation, I rather expect that Hayek intended the UK to discriminate between its own citizens and the rest of the world. Oh, the totalitarianism…!
Face it: Everybody acknowledges that government needs to discriminate among people. It discriminates when it chooses to incarcerate the convicted and not the innocent. It discriminates when it hire qualified people rather than unqualified. It discriminates when it chooses to put water on the houses of citizens that are on fire, and not on the other houses. In short, it discriminates on the bases of bona fide governmental purposes. So the issues is not whether government should discriminate, but WHAT QUALIFIES AS A BONA FIDE GOVERNMENTAL PURPOSE.
Lemieux favors more narrow grounds than do some other people. And that’s fine; everyone has their viewpoint. But I’m less sanguine when some people try to dress up their viewpoint as some kind of universal viewpoint.
Jon Murphy
Jul 18 2019 at 10:20am
The state is not discriminating against criminals. That statement would require a definition of discrimination so broad as to be meaningless.
Pierre Lemieux
Jul 21 2019 at 9:19pm
@nobody.really: A few quick comments in the order of your own comments:
The provision of the public good of security can be explained and justified either by spontaneously evolved institutions à la Hayek or by a unanimous social contract à la Buchanan. The latter could include side payments to gain the consent of the thugs that would be disadvantaged in a free and civilized society. (On Buchanan, see my post and the link there.)
Of course, “government actions constantly alter markets.” The question is which of these actions are justified.
I don’t think that a policy designed to maximize employment can be justified, as I explained in my Who Needs Jobs (Palgrave Macmillan, 2014). In fact, I would suggest that no serious economist or political philosopher can favor such a policy, for it amounts to maximizing costs. If that were not true, banning agricultural equipment and computers or instituting slavery would be desirable public policies.
Pierre Lemieux
Jul 22 2019 at 12:16am
@nobody.really: Again, a few quick comments on yours:
1. On the discrimination against criminals and others, haven’t @andy and @Jon Murphy given satisfactory answers? Another point is that a totalitarian autocracy or a totalitarian democracy may define criminals in an arbitrary and oppressive way. Just think that, in the United States, 40% of adults have a criminal record, and about 8% (included in the 40%) are convicted felons.
2. You are right to bring to our attention the fact that Hayek favored a guaranteed minimum income: I assume you were referring to the vol. 3 of his Law, Legislation and Liberty (pp. 55-56). Note however how he struggles to reconcile its application at the national level given his conception of the rule of (antidiscriminatory) law. I don’t remember what Hayek said about minimum wages (tell me if you know), but I suspect he was opposed since it is obviously more discriminatory than a guaranteed annual income for all. Hayek even looks like a contractarian when he writes (in vol. 2, p. 87): “To enter into such an insurance scheme against extreme misfortune may well be in the interest of all.”
3. Indeed, it is an essential part of the (classical) liberal state that it does not discriminate among citizens (and even mere residents) except on the basis of clear legal rules who cannot nominally target an individual or a group. Hayek is especially interesting on this point.
4. Finally, there is a basic idea that you tend to forget: when the state produces “public goods” (in the standard economic sense), it does not discriminate against any citizen since, by definition, all will benefit from a public good. Granted that it can discriminate through taxation, by having different individuals bear a different burden in the financing of public goods: this is a way a liberal state can become Leviathan (see Brennan and Buchanan, The Power to Tax).
nobody.really
Jul 22 2019 at 2:33am
Thanks for the replies. My answers got long, so I posted them below.
Pierre Lemieux
Jul 18 2019 at 7:50am
On the two strands in democratic theories, the liberal and the totalitarian (or Rousseauvian), you might want to read Jouvenel’s On Power. I mention the issue in my recent Econlib review of this classic book: “How the State Has Grown to Be the Monster We Know: Bertrand de Jouvenel’s On Power.”
Jon Murphy
Jul 18 2019 at 11:06am
On top of Pierre’s reading list, I also highly recommend Adam Smith’s discussion on justice and the role of the state in The Theory of Moral Sentiments, in particular, Part II, Section II Of Justice and Benefence. Further, his closing paragraph of Book IV and discussion in Book V of the Wealth of Nations is along the same lines (but it is very long, so I’d recommend just the TMS reading for now).
These readings will help clarify why the behavior of the state you highlight here is not comparable to a state favoring one class of citizens over another, or harming one group to benefit the other.
Phil H
Jul 20 2019 at 11:28pm
Jon, Pierre, thank you for those replies.
While I appreciate the references, I would appreciate more a little mention of what ideas are being used here. I managed to distil my arguments into a few succinct sentences. It would be great if you could do the same. Telling me that I don’t understand because I haven’t read your kabbalah doesn’t really make me believe your position.
Jon: “…the behavior of the state you highlight here is not comparable to a state favoring one class of citizens over another, or harming one group to benefit the other.”
“not comparable” is a very strong statement. I have compared the two. You may think that this comparison is flawed. But clearly they are comparable. I suspect the argument Smith puts is about individual responsibility and desert, right? That’s fine, and a decent argument, but surely you know that I have at least three easy counterarguments? (Attacking human agency, inevitability of discrimination between groups, natural conditions create inequalities – I don’t know which of these Smith addresses). “Smith! Drop the mic!” does not really work as an argument outside of Bible classes.
Jon Murphy
Jul 21 2019 at 3:43pm
Hard to distill as the argument is more nuanced, thus the sources. To fully appreciate, you’d need to read the sources. But here we go: a liberal state, as opposed to a totalitarian one, acts as an umpire, not an actor. It does not tip the scales one way or another, nor favor one group for another. To punish a criminal who has caused an injustice is not to discriminate but to satisfy that passion known as resentment and revenge for causing a real injury (ie, real and positive harm). It is recompense, not discrimination.
No. Just because you compared the two does not make the comparison valid. In other words, they are not comprable.
Aaron Z
Jul 18 2019 at 11:09am
There is another effect of the MW that I think is often ignored: How are individuals currently earning slightly above the MW affected? My assumption is that wages of individuals currently making $15-$20 would stagnate under an increase to $15. They would not likely see a corresponding boost to their wages and would likely see fewer/lesser raises. Has any study looked into these effects of MW? Are they included in any study that looks at who might be harmed?
Jon Murphy
Jul 18 2019 at 12:06pm
I can’t think of the precise studies’ names but there are a few that find those above the wage get a boost, but not as much. Also, there are studies that find that group is largely unaffected
Aaron Z
Jul 18 2019 at 1:12pm
That would make sense in the short term following a MW increase, but I’m more interested in longer term effects (greater than 1 year following MW increase). Labor elasticity (or inelasticity) can have certain effects that will be different upon immediate implementation of MW and in the longer run. My assumptions may be wrong, but I think that businesses must be forced to change how much they spend on labor not only on those at the MW, but others as well.
Pierre Lemieux
Jul 21 2019 at 11:01pm
@Aaron Z: You are right to look at the long run. What happens in the long run is indeed that the unemployment created by the minimum wage will be higher: not only will businesses hire fewer workers because the threshold of the latter’s profitable productivity has increased, but they will hire still fewer workers because the relative cost of labor has increased compared to the cost capital (ordering panels, automatic burger flippers, etc.). This is why the long-run elasticity of the demand for labor is higher than its short-run elasticity.
Jon Murphy
Jul 22 2019 at 7:57am
Pierre-
If I may add a small caveat to your comment:
Floccina
Jul 18 2019 at 11:56am
And that is not the only problem.
The minimum wage is effectively a tax that falls, in the short run, on the owners of businesses that employee people at below the proposed minimum wage and in the long run on people who buy products and services produced by those businesses, shouldn’t a tax be better targeted, say at the richest or highest consuming people?
It is not necessarily better to, for example, have a wife with a reserve market wage of $14/hour get a job at $15/hour, than a high school dropout with a reserve wage of $5/hour getting a job at $7/hour.
Mark Brady
Jul 18 2019 at 2:26pm
I look forward to reading Pierre’s response to nobody.really’s first post, particularly this section.
“Moral: GOVERNMENT ACTIONS CONSTANTLY ALTER MARKETS. Markets are social constructs. That doesn’t mean that the results of markets are arbitrary once you postulate a given level of government intervention. But it does mean that governments can, and inevitably do, alter their level of intervention—through the creation of an artificial level of law and order, to take the most obvious example–and those interventions alter the market results.”
And I also look forward to Pierre’s response to Benjamin Cole’s post.
Pierre Lemieux
Jul 21 2019 at 10:11pm
@Mark Brady: Your wishes have been granted. Don’t hesitate to tell if the grant has been insufficient.
Billy Kaubashine
Jul 18 2019 at 4:17pm
It will be interesting to see how many — and what kind of — voluntarily sidelined workers are drawn into the labor market by a big jump in the minimum wage. I could see a lot of retirees who wouldn’t bother working for $7.25/hr deciding to take a part time job at $15/hr.
I wonder if we’ll see a lot of old folks with good work ethic, good language skills, and no need for benefits (they have MediocreCare) displacing the young people who really need their first job.
Alan Greenspan said that when you raise the minimum wage, you raise the first rung on the ladder of opportunity.
chris
Jul 19 2019 at 11:10am
First, I want to note that you undermine your argument when you use weighted language like ‘comrad’, ‘subjects’. We know you’re using them to compare the opposition to your argument to unrelated political systems that you know have negative connotations. If you were making an argument comparing minimum wage to a feudal or communist society that would be one thing, but you are not so you are just muddying the water of an otherwise rational argument with the use of the language.
Second, whether you like it or not, the various levels of government are constantly impacting the market in many ways with various incentives, taxes, rules, etc. Beyond this, the actions of companies and, to a lesser extent, individuals, lead to unintended consequences for others. The market is heavily influenced by those with power of any kind, and the people making minimum wage are, generally, the least powerful and therefore constantly discriminated against by the market. With the minimum wage, the government is trying to be the impartial arbiter that you mentioned, by establishing a consistent set of standards for all to follow. A minimum wage is no different than a minimum age for labor in this regard; as a society we work together to determine what the minimum standard of living should be and the government helps to enforce that.
Third, in relation to the cost-benefit analysis, I would question what the total cost to society is, rather than a simple analysis that some number of people will be out of employment. By this I mean: Currently, say 20 million people make $7 per hour and therefore have to rely on X amount of government aid to survive. By increasing minimum wage, do we save enough by pushing 17 million people off government aid to then spend a substantially larger amount on the 1.3 million that lost their jobs, providing for basic needs as well as the education and/or relocation required to get back into the market? I would much rather have the government helping a small group of people get back to productivity than helping to keep a large number productive at below liveable wages as is currently the case.
Fourth, legitimate question: Assuming a minimum wage is off the table, how do you propose the poor earn enough to survive? I constantly hear people arguing against a minimum wage, and often with legitimate concerns, however those people, like you, are always defending the status quo, which is not currently sustainable with our level of population. The laissez-faire attitude that companies should pay as little and treat employees as poorly as people will accept was tried in the early 1900s and it led to child labor, riots, unionization and government intervention because it just didn’t work. It was closer to the feudal society you hinted at than our current governmental system will ever be.
Pierre Lemieux
Jul 21 2019 at 10:29pm
@chris: A few quick comments:
When you say “as a society we…”, consider that this way of speaking has no scientific meaning but, on the contrary, is mainly representative of a tyrannical theory of government? See my Econlib piece “The Vacuity of the Political ‘We’,” October 6, 2014.
If the minimum wage pushed only one person out of the labor market, the total amount of goods and services produced would be reduced (if only by a tiny amount). It is therefore impossible that some individuals could be helped without others being harmed. This is the way that cost-benefit analysis would approach the public policy issue.
I suggest that you review the history of capitalism–even when laissez-faire was far from implemented–and compare it with the history of dirigisme. Comparing Europe and American in the 19th century points to conclusions very different from yours.
chris
Jul 19 2019 at 11:22am
quick follow up to my previous post.
Doing a quick analysis of government spending between now and the adjusted min. wage:
Let’s assume for a quick analysis that $15 is the min. liveable wage and that the government is spending $7 per hour on each person making min. wage to get them to that level. If 17 mil. people move to $15 the government just stopped spending $119 million. To help the newly unemployed 1.3 million people, the government can spend up to $90 per hour per person before breaking even. From this perspective, this sounds like a complete win for everyone, as long as we focus on actively helping those that are negatively impacted. Since we know there will be an impact and we have an idea of what the government savings will be from the new wage, then we are in a good position to address those impacts.
zeke5123
Jul 19 2019 at 11:36am
Any action a state takes can cause harm to some. For example, free trade may hurt those who were previously “protected” from competition. But if the gains far exceed the losses, then it is still a good policy decision.
This seems different. Modest gain (though query if there are non-income harms not accounted for) for a number of workers; large loss for a smaller but material group of workers + loss for consumers.
Interestingly, the argument advanced by Rep. Bobby Scott undermines the notion of a progressive tax which is diminishing marginal return. If you have three people each make 7.5 an hour; two of them go up to 15 but one goes down to zero it is easy to say the net gain is 7.5. But that assumes that each dollar has the same unit of value. If you believe in diminishing marginal return, then the 15th dollar has less value than the first.
Diminishing marginal return combined with Rawls’ veil of ignorance provides a coherent (though not bulletproof) framework for progressive taxation and redistribution schemes.
I imagine Bobby Scott is in favor of progressive tax. I wonder how he squares that with his support for minimum wage.
Pierre Lemieux
Jul 21 2019 at 10:54pm
@zeke5123: That’s a good question, indeed.
However, “diminishing returns” cannot apply to utility, which is subjective. (Perhaps you mean “diminishing marginal utility,” but even then it does not allow for interpersonal comparisons of utility. It is probable that Rep. Scott confusedly believes in all these shibboleths, which makes his opinions inconsistent, as you point out. But one doesn’t need to adopt these non-scientific concepts to argue against redistribution through the minimum wage. See my answers to @chris for more on this.
chris
Jul 19 2019 at 12:00pm
zeke,
I think the diminishing return starts taking effect at a much higher wage than $7 or $15. Neither of those wages leaves much spending room for non-essentials so your whole wage is just going to staying alive, for the most part. In comparison, someone making $100,000 is only spending, say $30,000 on essentials and the rest is going to the non-essential. Each of those $70,000 has a diminishing return. The other way to look at it is that the diminishing return of income is non-linear, with a very shallow-to-flat slope at the low end, approaching a vertical slope at the high end. (slope being equal to the diminishment, in this graph).
Pierre Lemieux
Jul 21 2019 at 10:43pm
@chris: There is no way (other than some form of free exchange) to determine in a non-arbitrary fashion that taking $10 from A and giving it to B will increase or decrease utility in society. This is what economists call the impossibility of interpersonal comparisons of utility.
Suppose, if you will, that A is richer and B is poorer. Now, suppose that the redistribution will force A to buy one less classical-music album on iTunes while it will allow B to buy one more case of beer. What is the result in total utility? You might have your opinion on this, but it’s only your opinion.
Or, to quote Anthony de Jasay,
Reading my Econlib review of de Jasay’s The State might give you an idea of the issues involved–although it would be only an introduction to further discoveries.
nobody.really
Jul 22 2019 at 12:10am
Agreed. So if you ask Lemieux whether there was a net increase or decrease in utility when Hitler killed seven million Jews, he’ll tell you that there’s just no way to know.
Yet pretty much EVERYONE has an intuitive sense about this question. And it is precisely that intuition that people are appealing to when they recommend programs designed to help the poor–and precisely that intuition that Lemiux asks you to ignore.
Don Boudreaux
Jul 21 2019 at 8:24am
On the question of the state “taking sides,” I here humbly offer an essay that I wrote many years ago.
Pierre Lemieux
Jul 21 2019 at 8:56pm
Thanks, Don. I had missed your nice 1999 FEE piece. Your take on this strange idea that the state intervenes even when it doesn’t is interesting.
nobody.really
Jul 22 2019 at 2:24am
I found no answer from them explaining why government action against criminals did not constitute discrimination. Rather, they seem to argue that it constituted a form of discrimination that they favor—which is fine, but beside the point.
“Discrimination” refers to the act of choosing, perhaps on the basis of some criteria. That said, I understand that the word has acquired a stigma as a shorthand for “UNDUE discrimination,” which I think was the usage that andy and Jon Murphy may have employed.
Still, I persist in drawing the distinction between discrimination and undue discrimination. First, I want people to acknowledge that when they speak of undue discrimination, they are invoking a judgment term: undue. In short, until a more rigorous standard is articulated (e.g., disparate treatment, disparate outcome, malice), defining what level of discrimination is undue is simply a matter of opinion.
Second, I wish to draw parallels between government’s discrimination against criminals and government’s discrimination in setting up white and colored schools: Whether you approve or disapprove of the discrimination largely depends upon your opinion of the criteria applied. As Lemieux notes, government has categorized LOTS of people as criminals. It categorized MLK Jr as a criminal. And likewise, government has exonerated, or declined to prosecute, lots of people that you or I might condemn. Thus I don’t give a strong moral association to a person’s status as a criminal.
Indeed, and other sources besides; see below.
I don’t know what Hayek said about a minimum wage. I also suspect he opposed them for all the standard libertarian reasons. But it is unclear to me whether Hayek favored a means-tested transfer or a non-means-tested transfer. But even a non-means-tested program would presumably discriminate on the basis of citizenship or residency.
According to Hayek:
“The assurance of a certain minimum income for everyone, or a sort of floor below which nobody need fall even when he is unable to provide for himself, appears not only to be wholly legitimate protection against a risk common to all, but a necessary part of the Great Society in which the individual no longer has specific claims on the members of the particular small group into which he was born.”
Friedrich Hayek, Law, Legislation, and Liberty, Vol. 3.
“There is no reason why, in a society which has reached the general level of wealth ours has attained, [some] kind of security should not be guaranteed to all without endangering general freedom. There are difficult questions about the precise standard which should thus be assured …. but there can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody….
Nor is there any reason why the state should not assist the individuals in providing for these common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance – where, in short, we deal with genuinely insurable risks – the case for the state’s helping to organize a comprehensive system of social insurance is very strong…. [T]here is no incompatibility in principle between the state’s providing greater security in this way and the preservation of individual freedom. To the same category belongs also the increase of security through the state’s rendering assistance to the victims of such “acts of God” as earthquakes and floods. Wherever communal action can mitigate disasters against which the individual can neither attempt to guard himself nor make provision for the consequences, such communal action should undoubtedly be taken.”
Friedrich Hayek, The Road to Serfdom, Chap. 9, “Security and Freedom”
“I have always said that I am in favor of a minimum income for every person in the country.”
Hayek on Hayek: An Autobiographical Dialogue by F. A. Hayek, edited by Stephen Kresge and Leif Wenar (Chicago: University of Chicago Press, 1994)
And while we’re at it….
“Perhaps it is best to view some patterned principles of distributive justice as rough rules of thumb meant to approximate the general results of applying the principle of rectification of injustice. For example, lacking much historical information, and assuming (1) that victims of injustice generally do worse than they otherwise would and (2) that those from the least well-off group in the society have the highest probabilities of being the (descendants of) victims of the most serious injustice who are owed compensation by those who benefited from the injustices (assumed to be those better off, though sometimes the perpetrators will be others in the worst-off group), then a rough rule of thumb for rectifying injustices might seem to be the following: organize society so as to maximize the position of whatever group ends up least well-off in the society…. In the absence of … a treatment [of the principle of rectification] applied to a particular society, one cannot use the analysis and theory presented here to condemn any particular scheme of transfer payments, unless it is clear that no consideration of rectification of injustice would apply to justify it. Although to introduce socialism as the punishment for our sins would be to go too far, past injustices might be so great as to make necessary in the short run a more extensive state in order to rectify them.”
Robert Nozick, Anarchy, State, and Utopia, at 231.
Finally, recall that Milton Friedman supported a Negative Income Tax.
So if government requires nuclear reactors to have 5-foot thick concrete walls, it must require EVERYONE to have five-foot thick concrete walls?
Obviously not. We need to determine if government has a bona fide purpose in establishing some policy regarding nuclear reactors that differs from its other policies, and if so, whether the proposed policy bears an appropriate nexus to the governmental purpose (e.g., Would a four-foot wall suffice?).
I don’t know what “discriminate against” means. If Farmer Jones’s house catches fire during a drought, may the fire department pour water on his house? Or, given the scarcity of water, must the fire department pour water on everyone’s property equally, lest it be accused of “discriminating against” people whose houses are not on fire?
Yup. But progressive taxation has been around since the Ancient Greeks; if they couldn’t find a way out of it, I’m skeptical that we can. Yet once we concede that government can engage in progressive taxation, I think government can pursue nearly any level of income-leveling it likes, even if benefits programs aren’t means-tested, assuming the benefits are also taxable.
In short, I see no principled objections against this means of wealth distribution; I see only expressions about preferences.
In summary: I don’t find libertarianism especially compelling. But a person need not embrace libertarianism to conclude that a minimum wage law is a sub-optimal method of wealth distribution. But libertarian/conservative views will likely stymy better strategies to achieve wealth distribution, so we get stuck with a minimum wage by default.
Thomas Hutcheson
Jul 22 2019 at 10:19am
An increase in the minimum wage is not pareto optimal as are not many other interventions in the economy. It’s probably not a bad second best way of raising incomes of many low wage workers given the resistance to increasing the EITC, Child Tax Credit and other more efficient ways of redistributing incomes.
Comments are closed.