Minimum wage doesn’t have much effect on those making less than minimum wage

Some economists believe increases in the minimum wage will have ‘little or no effect on employment.’

That’s possible. People who aren’t productive enough to make minimum wage will still be able to find sub-minimum wage work and those people won’t show up in unemployment statistics since they are not looking for a job.

Some sub-minimum wage jobs are legal. If you are self-employed, you don’t have to make minimum wage. A buddy of mine once owned a used car lot. While he was a staunch advocate of a minimum wage, his sales people were ‘self-employed’, so he wouldn’t have to pay them the minimum wage if they didn’t sell cars.

Also, unpaid internships and grad students often make less than minimum wage.

Some sub-minimum wage jobs aren’t legal. Many drugs are illegal, but somehow they are readily available everywhere.

So, in other words, while economists use the argument that a minimum wage hike will have ‘little or no effect on employment,’ they don’t come right out and that’s because those who ignore it already will continue to do so, as drugs will continue to be sold.

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Minimum wage is dumb

Whether raising the minimum wage, or having one, helps or hurts is something economists disagree on.

Few economists, however, think whether it helps or hurts is irrelevant. If they think it helps, they support it. If they think it hurts, they don’t.

But, that’s the wrong way to look at it. It’s dumb either way.

If you don’t like a job, quit. You are not entitled to a job.

If the minimum wage is relevant, why does any employer pay more than the minimum to any employee?

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An emotionally attractive argument against minimum wage?

The previous post made me think of the argument for and against minimum wage.

Those who support it have the emotionally attractive edge. They say it helps the poor. They also have the easy-to-envision edge. It’s easy to envision Minimum Wage Worker Bobby getting a raise.

Those opposed would seem to have an emotionally attractive edge, too. They say it hurts the poor. If you care about helping the poor, that should get your attention.

But, how it hurts the poor is tougher for someone to envision and maybe not very emotionally attractive, as well.

They say it hurts the poor by reducing entry-level job opportunities for the folks who need them the most, people with little or no job experience. How do you get to the next run in the economic ladder without experience?

What does ‘reducing job opportunities’ mean? That’s tougher to envision than Minimum Wage Bobby getting a raise. Does it mean the burger shop not hiring an extra worker next year? Does it mean that some businesses will never materialize because the costs are too high? Yes and yes. But, again, that’s tougher to imagine than Bobby getting that raise.

And, is entry-level work really a run on the economic ladder? Does it lead to bigger and better and things? That is also hard to imagine, since most folks are brainwashed to believe that it’s education, not entry-level job experience, that moves you up the economic ladder.

They would need to be paying close attention to observe how important many of the work skills, habits and interpersonal skills learned on those entry-level jobs are to their jobs later in life.

The minimum wage argument boils down to, I can envision Bobby getting a raise and I think that is worth more than some nameless person down the road not getting something they never knew they were going to get.

So, how do you frame the argument against minimum wage to make it both more emotionally attractive and easy to envision?

Any ideas?


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We win with markets

Paul Rubin made a great point in his Wall Street Journal op-ed (thanks to Don Boudreaux, Cafe Hayek, for pointing to it).

Economists should point out that what makes markets thrive is cooperation, while competition plays a supporting role. This might help the perception of markets. As an example:

…we might say that a poor person has been outcompeted in the market. Or we might say that a poor person cannot successfully cooperate with others because he lacks valuable skills and has little to sell.

Again, the words matter because viewing the circumstance in terms of competition could lead to penalizing those who are viewed as outcompeting him, even though they did nothing wrong. It might even lead to banning certain terms in transactions—with minimum-wage laws, for instance—that make it even more difficult for the poor person to cooperate. The cooperative metaphor, by contrast, would suggest that the solution is increasing the skills of the poor person, giving him something to sell on the market.

Unfortunately, Rubin would still need to convince many other economists that minimum wage laws make it more difficult for the poor person to cooperate.

Employers should be thanked, not punished II

In this post, Steve Landsburg agrees with my sentiment that employers should be thanked, rather than punished. He writes:

Some people voluntarily go out on Sundays and pick up trash in the park. If we collectively decide that we need more trash pickup, do we turn to the people who have been doing this by choice and demand that they do more? Or do we decide that maybe the rest of us should pitch in as well (either by getting out there ourselves or paying others to)?

Exactly. We should be thanking the people who do it by choice, rather than demanding they do more.

Unfortunately, I think some do believe demanding that people doing it by choice is the best route to go, especially if it means that they appear to want a good thing, like clean parks, without actually having to do anything, except talk about it.

Minimum wage links

Don Boudreaux has had several great posts about the minimum wage lately, but a couple are exceptional. In this one, he does a great job of giving illustrative analogies to make the economics easier to understand. In this one he writes a letter to the New York Times to dispute the left’s favorite Nobel-laureate, Paul Krugman.

In this one, Greg Mankiw, also responding to Krugman, points to research that found a link between jobs and the minimum wage. Mankiw also points to a great post from Steve Landsburg, that introduces some interesting and different points. Steve edits that post here.

Mankiw also disagrees with the President about research on minimum wage.

Of course, there’s one single point that most of these economist, except Don Boudreaux, misses: What business is it of your’s?

If we can get a living wage for flipping burgers, why do we need to graduate 12th grade?

Don Boudreaux points to a comment from Maureen on Steven Landsburg’s blog post about the minimum wage.

Here’s some of her comment:

The bigger issue that I have is the assumption that somehow minimum wage is the start and end to a career. Minimum wage is a start, but if it is seen as an end, then we can revise a bunch of government budget items that will no longer be needed – starting first with money for the k-12 education system and the post secondary education systems. If unskilled labour is all that, as a society, we are willing to support with higher and higher minimum/living wages, then no one needs to graduate high school and we can stop at Grade 10 (or even maybe Grade 8). We can shrink that whole system down and get rid of vast amounts of government departments and the costs that go with them.

Good points.

Ask not…

Someone once said:

Ask not what your country can do for you — ask what you can do for your country.

It sure seems like a heck of a lot of people are asking what their country can do for them.


We get two good opinion pieces in the Wall Street Journal today.

1. Student Loan backfire: Default rates don’t lie.

Whereas credit scores used to be similar for young people with or without student-loan debt, New York Fed economists find a divergence after 2008. “By 2012, the average score for twenty-five-year-old nonborrowers is 15 points above that for student borrowers, and the average score for thirty-year-old nonborrowers is 24 points above that for student borrowers,” they note in a recent report.

If I were running for office, I would promise to give student loan borrowers more loans to help pay off their loans.

2. Michael Saltzman gives an economics lesson to VP Joe Biden.

Advocates of a higher minimum wage arbitrarily selected 1968 as the historical reference point. It’s no wonder: That’s when federal minimum wage hit its inflation-adjusted high point.

How about picking other arbitrary years to track the minimum wage and inflation? If you used 1948 instead of 1968, the minimum wage’s inflation-adjusted value would only be $3.81 an hour. If you chose 1988, the adjusted minimum wage would be $6.50 an hour.

And, if we pick a time before the minimum wage existed, it would be $0. What a distraction. I wish I lived in a world where when someone suggested raising the minimum wage to ‘help’ someone (get votes), everyone just laughed at them.

Russ Roberts on the minimum wage

Russ Roberts had some good recent posts about the minimum wage on Cafe Hayek. The paragraphs below are from his post about his follow-up thoughts to a debate he participated in to abolish the minimum wage:

Everyone, on the left and the right, agree that employers are eager to save costs and will substitute machines for workers or outsource production if those changes are profitable. Why will artificially higher wages created by minimum wage legislation not lead to similar substitutions?

No joke. But, of course, proponents of minimum wage will cite ‘empirical evidence’ that shows that raising the minimum wage has no effect on jobs or employment. And, of course, they never consider that these studies may not tell the whole story or have limitations.

They also seem to forget basic econ where we are taught that if a price floor is well below the going-market rate, it won’t have much affect on supply. In other words, if the minimum wage is well below the going market labor rate, then it won’t have much effect on jobs. For example, if I set a minimum wage at $0.50/hour, most people would intuitively know that’s so low, it doesn’t  effect anyone — employees or employers.

So, while minimum wage studies are often heralded as empirical support for raising the minimum wage, they are much more likely to be empirical support for that basic econ understanding of a price floor.

Next (emphasis mine):

The weird part of the debate over the magnitude of the employment effects, is that when someone uses the reductio ad absurdum of a minimum wage increase to say $50 or $100 an hour, everyone understands that won’t work because it would destroy the labor market. So where do those disemployment effects kick in? If the minimum wage is small enough so that it doesn’t cause job losses, then it can’t be having much of an effect boosting wages.

Yes. Where do the disemployment effects kick in? Great question and I never hear anybody ask it or answer. It’s similar to the ‘rich must pay their fair share’ tax debate where the answer is always ‘more’.

It occurred to me after reading this paragraph that the same people who cite empirical evidence that changes in the minimum wage don’t affect jobs (that price floors below the going market rate don’t change supply), don’t seem interested in asking about empirical evidence that raising the minimum wage actually increases wages.

I suppose they assume that if it doesn’t change the number of a jobs and a few people are marking more now, then wages must go up.  But, that assumes a lot. For example, it assumes other things don’t change — like the number of hours worked and the value of fringe benefits like employee discounts — to name a couple.