Wednesday, July 14, 2004

Minimum wage

It's worth reading this Slate article on the minimum wage, not because it's particularly correct about the minimum wage, but because it raises an effect of regulation that is generally true.

The article argues that minimum wages are not bad because 1) who wants that nasty low paying job anyway, 2) it helps some people who now enjoy higher salaries, and 3) it does not seem to cause much unemployment (which is what economics predict will happen). Instead, it says that minimum wage laws are bad because they place the entire burden of this wealth redistribution on employers of low-wage workers and their customers, folks who probably run small neighbourhood operations in marginal areas, and there are much better ways to do this. Therefore, minimum wage laws act as a giant, inefficient, harmful tax that does not appear on any government account.

I have written about the minimum wage many times before on this site, and I don't offer anything beyond the basic economic explanation: raising the minimum wage prices workers who produce less than that new wage out of the market and makes the unemployable. Since these folks are the poorest workers, and banning them from gainful employment is cruel and pointlessly stupid.

Landsburg seems to take a "let them eat cake" attitude towards this last point what? Sure, you've lost your job. But don't forget, this was a minimum-wage job in the first place. Losing a lousy job might not be a whole lot worse than keeping it
The above position makes no sense to me.

You could argue that the minimum wage does not hurt people *much* because demand at that wage level is very inelastic, and there is good empirical evidence to support this point, but it is also inescapable that you are taking some of the poorest folks out there and hurting them a little. I missed where that became OK.

More important is the point where Landsburg points out (correctly) that the law could also be a implemented as a tax on lowest-wage employers which then funded cash handouts to lowest-wage workers. You could calculate how large this tax would be, and then consider what it would do to lowest-wage employers (if anything). This it the way to think about almost any government regulation that does not create markets but instead tries some social engineering. The benefit of thinking about it this way is that it makes transparent what the economic consequences of a particular policy are, something that folks generally have no clue about at all.

Personally, I think there would be many benefits to a political system where every decision was auctioned off to the highest bidder, but whomever was hurt by that decision would need to be paid the full extent of that harm. This would move all the bribery/lobbying into public view, and let markets operate fully, and efficiently, in regulation. Any rule that would be worth more to one party to create than it would cost to compensate other negatively affected parties is probably a good one.


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