Excerpted
from Making
Economic Sense
There is
no clearer demonstration of the essential identity of the two
political parties than their position on the minimum wage. The
Democrats proposed to raise the legal minimum wage from $3.35
an hour, to which it had been raised by the Reagan administration
during its allegedly free-market salad days in 1981. The Republican
counter was to allow a "subminimum" wage for teenagers,
who, as marginal workers, are the ones who are indeed hardest
hit by any legal minimum.
This stand
was quickly modified by the Republicans in Congress, who proceeded
to argue for a teenage subminimum that would last only a piddling
90 days, after which the rate would rise to the higher Democratic
minimum (of $4.55 an hour.) It was left, ironically enough, for
Senator Edward Kennedy to point out the ludicrous economic effect
of this proposal: to induce employers to hire teenagers and then
fire them after 89 days, to rehire others the day after.
Finally,
and characteristically, George Bush got the Republicans out of
this hole by throwing in the towel altogether, and plumping for
a Democratic plan, period. We were left with the Democrats forthrightly
proposing a big increase in the minimum wage, and the Republicans,
after a series of illogical waffles, finally going along with
the program.
In truth,
there is only one way to regard a minimum wage law: it is compulsory
unemployment, period. The law says: it is illegal, and therefore
criminal, for anyone to hire anyone else below the level of X
dollars an hour. This means, plainly and simply, that a large
number of free and voluntary wage contracts are now outlawed and
hence that there will be a large amount of unemployment. Remember
that the minimum wage law provides no jobs; it only outlaws them;
and outlawed jobs are the inevitable result.
All demand
curves are falling, and the demand for hiring labor is no exception.
Hence, laws that prohibit employment at any wage that is relevant
to the market (a minimum wage of 10 cents an hour would have little
or no impact) must result in outlawing employment and hence causing
unemployment.
If the minimum
wage is, in short, raised from $3.35 to $4.55 an hour, the consequence
is to disemploy, permanently, those who would have been hired
at rates in between these two rates. Since the demand curve for
any sort of labor (as for any factor of production) is set by
the perceived marginal productivity of that labor, this means
that the people who will be disemployed and devastated by this
prohibition will be precisely the "marginal" (lowest
wage) workers, e.g. blacks and teenagers, the very workers whom
the advocates of the minimum wage are claiming to foster and protect.
The advocates
of the minimum wage and its periodic boosting reply that all this
is scare talk and that minimum wage rates do not and never have
caused any unemployment. The proper riposte is to raise them one
better; all right, if the minimum wage is such a wonderful anti-poverty
measure, and can have no unemployment-raising effects, why are
you such pikers? Why you are helping the working poor by such
piddling amounts? Why stop at $4.55 an hour? Why not $10 an hour?
$100? $1,000?
It is obvious
that the minimum wage advocates do not pursue their own logic,
because if they push it to such heights, virtually the entire
labor force will be disemployed. In short, you can have as much
unemployment as you want, simply by pushing the legally minimum
wage high enough.
It is conventional
among economists to be polite, to assume that economic fallacy
is solely the result of intellectual error. But there are times
when decorousness is seriously misleading, or, as Oscar Wilde
once wrote, "when speaking one's mind becomes more than a
duty; it becomes a positive pleasure." For if proponents
of the higher minimum wage were simply wrongheaded people of good
will, they would not stop at $3 or $4 an hour, but indeed would
pursue their dimwit logic into the stratosphere.
The fact
is that they have always been shrewd enough to stop their minimum
wage demands at the point where only marginal workers are affected,
and where there is no danger of disemploying, for example, white
adult male workers with union seniority. When we see that the
most ardent advocates of the minimum wage law have been the AFL-CIO,
and that the concrete effect of the minimum wage laws has been
to cripple the low-wage competition of the marginal workers as
against higher-wage workers with union seniority, the true motivation
of the agitation for the minimum wage becomes apparent.
This is only
one of a large number of cases where a seemingly purblind persistence
in economic fallacy only serves as a mask for special privilege
at the expense of those who are supposedly to be "helped."
In the current
agitation, inflation supposedly brought to a halt by the Reagan
administration has eroded the impact of the last minimum wage
hike in 1981, reducing the real impact of the minimum wage by
23%. Partially as a result, the unemployment rate has fallen from
11% in 1982 to under six percent in 1988. Possibly chagrined by
this drop, the AFL-CIO and its allies are pushing to rectify this
condition, and to boost the minimum wage rate by 34%.
Once
in a while, AFL-CIO economists and other knowledgeable liberals
will drop their mask of economic fallacy and candidly admit that
their actions will cause unemployment; they then proceed to justify
themselves by claiming that it is more "dignified" for
a worker to be on welfare than to work at a low wage. This of
course, is the doctrine of many people on welfare themselves.
It is truly a strange concept of "dignity" that has
been fostered by the interlocking minimum wage-welfare system.
Unfortunately,
this system does not give those numerous workers who still prefer
to be producers rather than parasites the privilege of making
their own free choice.