Don Boudreaux, of Cafe Hayek, made a very timely post for me: Other Unseen Consequences of Minimum Wage Legislation. One of his graduate students is beginning to study links between minimum wage and people working in illegal or illicit activities.
It’s timely because I’ve been working on a post covering this very topic. I’ve been struggling to edit it because it is complex — and I have more topics than just illegal activities.
One thing that annoys me about the minimum wage debate is how simple it is. It typically centers on only two factors: the minimum wage rate and unemployment. There are many more factors that don’t get much or any attention.
One factor is that even with a mandated minimum wage, people still work for less than minimum wage — legally and illegally, in legal activities and illegal activities.
I enjoyed Boudreaux’s post because it validated two things. One, that minimum wage may have one unintended benefit in pushing people to work in illegal activities. Two, that this topic doesn’t have much discussion. Boudreaux writes:
Darwyyn [his graduate student] is in the early stages of her research. So far, the only significant and relevant study she’s uncovered is a very good October 1987 paper…
One study so far from 1987. Proof this is not much discussed.
And for me, this is only one part of many factors that don’t receive attention. As I mentioned above, I view this particular factor in three categories, people who work for less than minimum wage…:
1. Legally in legal activities
2. Illegally in legal activities
3. Illegally in illegal activities
Boudreaux’s graduate student’s focus is on #3. This factor was the target of my first attempts at a concise and emotionally attractive argument against the minimum wage in this post.
But there’s still two other categories in this one factor. Raise your hand if you ever worked for less than minimum wage in either of those two categories!
I have. While there are many more examples from my life, I’ll pick two.
I. Illegally in legal activities. When I was a kid, the local bike shop owner offered me an off-the-books job. He’d pay me $4 cash for every bike I assembled out of the box for his showroom. He also gave me a generous discount to things I bought at his shop and gave me access to tools to help me maintain my bike.
This made sense for him. This freed up his experienced mechanics to work on higher margin repair and maintenance work for customers, while giving me the easier job of assembling bikes.
I wasn’t efficient at assembling bikes to start with, so I rarely cleared the minimum wage. As I became more efficient, I could clear the minimum wage. This is a good example of something a lot of people have a hard time understanding, what low-skilled workers are worth. For the bike shop owner, my worth wasn’t measured in hours worked, it was worked in the number of bikes I could produce for him to sell.
And, as my productivity improved, so did my wage rate. I may not have had a chance to improve my productivity if the bike shop owner followed the law and paid me more than I was worth to begin with.
Assembling bikes isn’t illegal. But, I believe I was probably too young to work, I got paid in cash (so no records, no taxes) and often made less than minimum wage, which I think made my employ illegal.
II. Legally in legal activities. As an adult, I volunteer to organize and coach a youth sports team. This is no small task. It takes quite a bit of time and effort and there are plenty of people who do it for pay.
However, I do receive benefits. I get to do something with my kid (he’s on the team). I enjoy the sport and, as I’ve come to know the other kids on the team, it’s rewarding for me to see their knowledge, skills, teamwork and sportsmanship develop.
I’ve also learned quite a bit about a sport I knew nothing about when I started and about coaching, leadership and delegation. I also find it to be a thought-provoking exercise. The key task of a coach is prioritize the 10 things that you need to work on down to 1 or 2 so the team can make the most progress in the next game. More on that in another post.
Those benefits to me are worth well more than a wage I could have earned. Nobody will say I shouldn’t do this because I don’t make minimum wage, even if I was poor. There are plenty of poorer coaches that do exactly what I do.
And, it’s not a matter of resources. For me to make the minimum wage would cost each set of parents about the price of a latte each week.
But, since I’m doing this for individuals — the parents and the kids — nobody really thinks about the minimum wage. If was doing it for some faceless “business”, they might.