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« Congress Polices Itself | Main | The Minimum Wage, Continued » November 19, 2006CostsMy onetime co-blogger hilzoy is pushing for a minimum wage increase to help the poor. To defend that, hilzoy notes a number of sad stories about poor people who live on the edge and who are extremely vulnerable to economic dislocation. The beauty of anecdotes is they're almost impossible to fight. Who wants to stand up and be the guy who's in favor of people living without electricity, without heat, without food, and so on? And make no mistake, if you don't agree with a lot of leftists about their policies for helping the less fortunate, you actively want to see the poor suffer as far as the left is concerned. The argument quickly spins away from logic into emotion, which gives the left the advantage they're quite happy to press. Which of us, after all, really wants people to suffer? If we were handed a magic wand that could eliminate poverty, I suspect there are very few people who wouldn't use it. Unfortunately, too many people think that such magic wands exist, only they use names like the minimum wage to describe them. Hilzoy's argument is that the benefits of a minimum wage outweigh the costs. My instinctive response to that is how nice it must be to be able to make those decisions for other people. I personally would have a hard time telling someone that they're better off being out of a job than having a job for less than minimum wage. And it's pretty obvious, given the influx of illegal immigrants into the country, that there are a lot of people who are more than willing to work for less than the minimum wage, so clearly they disagree with those who say that you shouldn't be allowed to work for a lower wage than that set by the government. Which is really my number one objection to a minimum wage: what gives the government (and particularly the federal government) the power to interfere with freedom of contract? If I'm willing to work for $5 an hour, why should the government be allowed to step in and say 'No, you either work for $5.15 an hour or not at all'? Am I the only one who thinks that's a bit insane? You have someone willing to work and someone willing to pay, but we need a bureaucracy that can prevent that transaction from occurring? This is why I tend to chuckle when people on the left say they're about personal freedom. They're really no different from those on the right: they're willing to support the freedoms they think we should have, but they're quite willing to suppress the freedoms they think are bad for us. Sure, the freedoms the left and right want to protect and suppress vary a bit, but in the end, we end up in the same place whichever of them is in charge: only as free as our overlords are willing to allow. There is, of course, a counter to this. Businesses tend to have more power than individuals. If Wal-Mart is only willing to offer $2/hour, as an individual who needs $5/hour (all figures, I should note, are wholly fictional, so please don't waste time explaining that nobody can live on $5/hour) I have very little leverage to force them to pay me more. If unemployment is very low and there are lots of jobs out there, some upward pressure on wages will accrue, but I can't depend on that to get me the money I need. Businesses will, of course, always try to pay people the least amount possible, and because they deal with many people, it is relatively easy for businesses to determine the going rate and not overpay for labor. Individuals, conversely, are unlikely to deal with a great number of businesses, so it is more difficult for them to know if they're not getting as much money as the market will bear. They can, of course, demand raises until they don't get them any more, but that technique carries with it the risk of termination, something the poor really can't afford. Minimum wage is seen as a solution to this by setting a floor for wages. Unfortunately, that floor is permeable. There are plenty of immigrants willing to work for less than minimum wage. This creates two problems: first, we have a surge of illegal immigrants flooding the country, providing chances for less desirable people to come across the border in their midst (I have no objection whatsoever to illegal immigrants, I should note; they come here to work, and I'm not going to condemn that). Second, these immigrants end up taking jobs from citizens, although I'm not sure how much of that is people not getting the jobs because the immigrants undercut their wages and how much of it is people who just don't want to work. In any case, we end up with a fair sum of people who aren't gathering any benefits from minimum wage increases, and we may be exacerbating our security problem into the bargain. Minimum wage proponents also fail to address another key fact of economics: all economics is is a means of distributing resources. That's why the supply and demand curves work the way they do: if there is very little of a resource, it will sell for more money because only a few people can have it. If there's a lot of something, its price will fall because it's not hard to get. Money is nothing more than a means to an end: a way for people to exchange their labor and production for other people's labor and production. As such, the amount of money in a system will affect prices by causing prices to rise when more money is available. Yes, this is basic economics, but it's something that people who want to raise minimum wage don't seem to consider: if there are 1,000 people trying to get their hands on 500 items and you increase the amount of money people have, what will happen to the price of that item? Obviously it will go up. There are still the same number of people who want the item, and there are no more of that item available, so all you've done by increasing the amount of money people have is to raise the price of the item. It's difficult for me to see how this helps people. Having said all that, the damage has already been done. We're not going to repeal the minimum wage, and even in relatively red states such as Colorado, people voted to increase the minimum wage and index it to inflation. Were I a betting man, I'd guess we're not really doing much to help people, but I suppose the minimum wage does at least allow people to feel better about themselves by arguing that they're 'doing something' about poverty. I'm not sure how to value good feelings, but I suppose they're worth something. Further, as I'm not really sure how to help solve some of the problems I mentioned above, I suppose I'm not likely to convince people not to raise the minimum wage without offering some alternative solution, particularly when whatever damage the law causes is likely to be invisible. After all, we have no way of knowing how fast the economy will grow, so if laws cause it to grow less rapidly than otherwise, there's no way to prove that, so nobody notices the damage. This is a common problem in American politics. We realize there's a problem, but we fail to find solutions that will actually solve the problem. Instead we offer some solution that does little good, and often harms people, and pretend we've fixed the problem, or wonder why our solution hasn't fixed it. Will the minimum wage help some people? I think it certainly will. Will it help more people than it harms? That's a much more difficult question, but I think the answer is no. Ultimately, raising the minimum wage will do little more than price some labor out of the market and increase prices, meaning the poor will have more money but will really be no better off. I'm not certain what the solution to improving the lot of the poor is, but increasing the amount of money they have without improving their purchasing power doesn't strike me as particularly helpful. powered by performancing firefox Posted at November 19, 2006 10:20 AM
Comment policyI apologize for only allowing authenticated commenters, but comment spam overwhelms the site if I don't use those measures to prevent it. I reserve the right to delete any comment, although generally comments will only be deleted due to use of profanity or personal attacks on people. I have no objection to vigorous argument, but when name-calling begins, I'm putting a stop to it. In the immortal words of Eugene Levy, "People, people, let's stop this before somebody says something untrue!" If you want to call people names, I recommend you get your own blog. Trackback PingsTrackBack URL for this entry: CommentsAndrew: about this: "I personally would have a hard time telling someone that they're better off being out of a job than having a job for less than minimum wage." -- I laid out the economic evidence against the idea that the minimum wage costs jobs here. A lot of evidence against that idea has piled up in the past decade or so, and I find it pretty convincing, for reasons I lay out in the post I just linked. I don't really get this part: "Yes, this is basic economics, but it's something that people who want to raise minimum wage don't seem to consider: if there are 1,000 people trying to get their hands on 500 items and you increase the amount of money people have, what will happen to the price of that item? Obviously it will go up." Not that I don't understand supply and demand; just its application here. Offhand, the minimum wage wouldn't seem to somehow produce more money; it just leads to its being differently distributed than it would be without the minimum wage. If that leads to a rise in demand for certain goods, why wouldn't the obvious effect of that be not that prices go up, but that people make more of that good? I mean, that's what happens in most cases in which the supply of a given good is not inflexible (as it is in the case of, say, the Mona Lisa). When lots of baby boomers start going in for home renovation, the result is not that our fixed supply of drywall becomes ruinously expensive; it's that people make more drywall. About the anecdotes: two things. First, when evidence was appropriate (e.g., in both the 'will the minimum wage cause people to lose their jobs?' post and the 'who gets the minimum wage? post), I presented evidence. The anecdotes were in support of a different claim that seemed to me to be lurking in the previous thread, namely: that if people just pulled up their socks and got rice cookers, they'd be OK. I'm not sure what evidence would bear on this; in any case, stories about why it wasn't always so seemed like the best way to make a more general point: that bad luck happens, and people with no margin of error can't deal with it. But I agree with you, in general, that anecdotes are not the way to argue about economic policy in general; they just seemed like the way to go on this specific point. Posted by: hilzoy Thomas Sowell calls what you've just described stage one thinking. Stages two and beyond happen far enough into the future that it is often difficult to tie the result to the cause. Politicians count on that, it's called being a demagogue. It is a matter of simple fact that any sort of price control, whether on wages, products or services, has an impact beyond the immediate control. In the case of a minimum wage, you are correct to point out that some people will lose their jobs because of an increase. But the effect goes far beyond that. In fact, most union wages are tied to the minimum wage. An increase in the latter results in an automatic increase in the former. The result is that we all pay much more for goods and services across the board. Unions have driven the push for a minimum wage in crease for this very reason and it's a major reason why liberals support it. Posted by: Ron Goodwyne "Which is really my number one objection to a minimum wage: what gives the government (and particularly the federal government) the power to interfere with freedom of contract?" If that argument holds up, it needs to either hold up across the board or explain why the minimum wage is an exception. Do you also object to non-discrimination laws, the ones that, by mandate of the government, forbid contracts wherein people are allowed to discriminate by race, gender, religion, place of origin, etc., in matters of housing and hiring? If not, why not? I'm not clear if you also object to laws enacting a maximum work week, or fire safety codes, or laws mandating safety around, say, mines, and meatpacking plants, but I'd again, as is necessary when almost any question of government regulation comes up, direct you to the clear and lengthy and deep history of what life was like before these laws, and why and how they came into place, with regard to a lengthy examination of the specfics, and the human horror. Beyond that, basically, there seem to be three stances available: 1) government has no right to regulate in these matters, and as regards contracts, period; 2) there should be no restriction whatever on how much and how far government can restrict citizens; 3) something in between. Most folks seem to go for the third choice. I certainly do. Those who do then are simply arguing the details. It's not clear to me that you're an absolutist libertarian -- I don't have the impression you are -- in which case, then we too, are just arguing the details, but in which case it would really seem to be logically necessary for you to stop making the absolutist case/claim with such questions/arguments as "what gives government the right to regulate?" or "what gives government the right to spend other people's money, or to confiscate it?" and to move on to the questions of "is this particular use of regulatory power/spending wise/justified, or not?" But perhaps I'm missing stuff, and you have a good case for seeing things otherwise, to be sure. I shall certainly read it with interest. Posted by: Gary Farber I second what Gary has said: in which case it would really seem to be logically necessary for you to stop making the absolutist case/claim with such questions/arguments as "what gives government the right to regulate?" or "what gives government the right to spend other people's money, or to confiscate it?" and to move on to the questions of "is this particular use of regulatory power/spending wise/justified, or not?" We are talking about a judgment call -- are you actually arguing that overall social good would be promoted by eliminating the minimum wage? If that is not your argument, then we are simply talking about the cost/benefit analysis for a certain level of minimum wage. The "freedom of contract" argument should only be perceived as one factor in making that analysis, and frankly its pretty irrelevant when talking about a minimum wage. These are contracts of adhesion -- they are not subject to bargaining. Freedom of contract would permit indentured servitude, as it did in the unregulated past. Minimum wage is up there with 40 hour work week and 8 hour work day laws -- there are many similar workplace rules that set a minimum standard for employment. We have historical experience with the type of society that results without such regulation -- it was rather ugly. You should think about the bigger issue here, which is the fact that some degree of government intervention is always necessary in order for capitalism to work. Unregulated capitalism is a social evil, and just so happens to result in destruction of free markets (that is the history). Conservatives who argue otherwise need to take some lessons in economics and history. There is also plenty of experience with the ills of over-regulation or unnecessary regulation, but those problems do not justify the opposite result. Posted by: dmbeaster I'm trying to wrap my head around this 'purchasing power' thing. I mean, if a burger flipper at Mcdonalds gets a raise, does that automatically mean that the price of a double cheesburger goes up 10 cents or something? Wouldn't the burger flipper now have the means to pay for a better burger somewhere else? If wages go up, why wouldn't business just live with a little less profit? When I get a raise, the price of what I buy doesn't go up. I tend to get more things, or more expensive things than I did before. If I were to suffer a pay cut, I would buy less expensive things or less things altogether. Posted by: Elais Post a commentThanks for signing in, . Now you can comment. (sign out) (If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.) |
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