It’s become boring at this point: a big New York Times editorial calling for the doubling of the minimum wage: “The American economy is generating plenty of jobs; the problem is in the paychecks. The solution is a $15 federal minimum wage.”
The editorial proceeds to cite a number of studies showing little to no impact on jobs from raising the minimum wage. Each of these studies fails for the same reason: they have no way to test whether employment remained mostly unchanged because of rather than despite the minimum wage. A growing economy with solid business investment can withstand the violence of intervention better than a slowing economy with low investment.
The question still presents itself: what good does the minimum wage do?
There is elemental logic to understanding why minimum wages are damaging. Buyers demand less at a higher price than a lower price. The wage is the price at which employers purchase labor. All else equal, less work will be bought at a higher price. A price floor, such as the minimum wage will necessarily end in fewer labor purchases than there would otherwise be.
The result will not always be obvious. Laborers might have long ago stopped looking for work. Existing workers could be pressed into more service at the same wage. Hours could be cut back. Hirings and wage increases that might have occurred do not take place, but such is invisible to the data.
The people hit the hardest are the marginal workers. They are new entrants, the disabled, the untrained, the underqualified. So the minimum wage harms those especially vulnerable, precisely as Frank Taussig said in his best-selling economics textbook from the early decades of the 20th century. He pushed minimum wages precisely because they cull the population:
We have not reached the stage where we can proceed to chloroform them once and for all; but at least they can be segregated, shut up in refuges and asylums, and prevented from propagating their kind.… What are the possibilities of employing at the prescribed wages all the healthy able-bodied who apply? The persons affected by such legislation would be those in the lowest economic and social group.
The notion that the minimum wage causes social improvement without cost is just as absurd as the idea that the price of eggs can be doubled by law and this will have no effect on sales – only more profits to egg producers. It’s contrary to every economic sense, and describing its effects is no different from describing the effects of gravity on rocks dropped from buildings.
No debate is more frustrating for economists (real ones, not those seeking headlines or working for labor unions). That price or wage controls are unworkable has been known for centuries. And yet here we are with people still advocating terrible policies that hurt the most vulnerable the most. And we aren’t just talking about the poor. We are talking about your sons and daughters, nephews and nieces, your disabled first grandchild who would enjoy the dignity of work instead of being forcibly excluded by state policies.
This stuff seriously matters.
The New York Times, on January 14, 1987, ran the following editorial. It’s just as correct now as it was 33 years ago.
The Federal minimum wage has been frozen at $3.35 an hour for six years. In some states, it now compares unfavorably even with welfare benefits available without working. It’s no wonder then that Edward Kennedy, the new chairman of the Senate Labor Committee, is being pressed by organized labor to battle for an increase.
No wonder, but still a mistake. Anyone working in America surely deserves a better living standard than can be managed on $3.35 an hour. But there’s a virtual consensus among economists that the minimum wage is an idea whose time has passed. Raising the minimum wage by a substantial amount would price working poor people out of the job market. A far better way to help them would be to subsidize their wages or – better yet – help them acquire the skills needed to earn more on their own….
If a higher minimum means fewer jobs, why does it remain on the agenda of some liberals? A higher minimum would undoubtedly raise the living standard of the majority of low-wage workers who could keep their jobs. That gain, it is argued, would justify the sacrifice of the minority who became unemployable. The argument isn’t convincing.
Those at greatest risk from a higher minimum would be young, poor workers, who already face formidable barriers to getting and keeping jobs. Indeed, President Reagan has proposed a lower minimum wage just to improve their chances of finding work.
Perhaps the mistake here is to accept the limited terms of the debate. The working poor obviously deserve a better shake. But it should not surpass our ingenuity or generosity to help some of them without hurting others….
The idea of using a minimum wage to overcome poverty is old, honorable – and fundamentally flawed. It’s time to put this hoary debate behind us, and find a better way to improve the lives of people who work very hard for very little.
We have low unemployment today in part due to the minimum wage in real terms not having risen much since the 1970s, so it is ever less relevant (but still harmful). This is a good thing, not a bad thing t0 change.
It’s a genuine question: how can we help poorer workers? Denying them opportunity by law, as the minimum wage does, is surely not the way.