I was basically called out in print yesterday (2006) for being morally corrupt. Why? Because I think that the minimum wage is an awful way to help those in need. Who called me out? An esteemed philosophy professor of course! Here is my reply:
Minimum Wage: Rhetoric, Not Reality
Disagreements about the minimum wage have nothing whatsoever to do with values. And to treat them as such not only belittles our intelligence but also turns the attention away from the real causes of prosperity and well-being. The default condition of humans is poverty – it is not enormous wealth. Our human record over several millennia clearly demonstrates this. But, if you have difficulty believing that, ask yourself how wealthy we would we be if we sat at home and did nothing?
Poverty is not the result of people earning too small a wage – the majority of poverty cases stem from workers unable to work enough hours, unable to find a job, or more generally unable to produce something that others are willing to pay for (often through no fault of their own). The plight of lower-income citizens is too serious a matter to demagogue for political gain, and adherents of both parties are equally guilty of doing so. Advocating for a higher minimum wage is one such case.
Over half the minimum wage earners are under the age of 25. What these young workers need to prosper is nothing more than a little age and experience. In fact, virtually no workers earn the minimum wage for more than one year – because experience and training increase their productivity. Furthermore, over 90 percent of working teenagers earn more than the minimum wage. Either teenagers are exceptionally savvy in the bargaining they do with the capitalistic fat-cats that are trying to keep the little-man down, or wages are a function of productivity. You decide which is more plausible.
A substantial body of economic research has demonstrated that the short-run employment losses due to a small increase in the minimum wage would be minimal. On those grounds alone, there would not be too much economic harm done by raising the rate a small amount. However, how many readers would decide to spend more on a good or service when its price increases? When the price of gasoline spiked above $3.00 how many of us ran out and bought hundreds of gallons of gas? How many of us drove more? How many of us decided to stop using public transportation or car-pooling? I doubt any of us did these things. To think that employers would not respond on other margins to mandated increases in their costs is the same as asking drivers to drive more when gas prices rise. When employer costs are forced above what their employee productivity dictates they could afford to pay, then benefits will be cut; hours will be reduced; training opportunities will be diminished; businesses will offer fewer services; and more automation would result. It is hard to imagine how any of that can actually help low-skilled workers.
To rely on think tanks with liberal agendas (e.g. the Economic Policy Institute) or conservative agendas (e.g. the Employment Policies Institute) for research on the minimum wage is dishonest. Anyone has the ability to cherry pick data to support their belief system. But all this does move the discussion away from real policies that might actually help those in this country that are most in need.
I suffer no illusion that there is an easy way to help the poor. If there were, how come some brilliant statesman has yet to seize on it? What I do know is that government policies have done so much damage to the poor over the past 50 years that one must become skeptical of any easy solution – particularly things like the minimum wage. We can all do our part to help the less fortunate by not advocating for policies that make it more difficult for them to find work – and by creating employment opportunities for them ourselves.
It is nearly impossible to reason with political zealots about economic policy. The reality is that there are dozens of better ways to help the poor that liberal-democrats and conservative-republicans could both support and it is astounding that these discussions are not taking place. Why are they not? Because by adhering to any one of these better policies many people would be forced to abandon the positions on which their reputations and careers are staked on. For example, it is nearly universally agreed upon that the Earned Income Tax Credit is an excellent policy for alleviating poverty. Why are politicians not standing behind the EITC rather than the minimum wage? Because their opponents would agree with them? Because of poverty were alleviated it would be difficult to demagogue issues like the minimum wage? One can only wonder.
No serious economist believes the minimum wage is a useful tool for aiding low-income individuals. Even the 650 signatories of the infamous letter calling for increases in the minimum wage know this. One award winning economist and signatory indicated to me that,
“I do not believe that the minimum wage is an effective way to fight poverty. My support and endorsement of the letter comes from the symbolic nature of the minimum wage. It was the first piece of protective labor legislation passed at the national level in the United States . Over time its value has eroded relative to average hourly earnings, even though that hasn’t been doing so well itself due to the decline of durable manufacturing. In a world in which everything else is indexed- social security, some retiree pensions and we are constantly giving tax breaks to the rich, we need to make a symbolic statement about our concern for the people who are less well off than us.”
There you have it – even ardent supporters of the minimum wage do it for symbolic reasons. What is the harm in that? Opposition to the minimum wage should also be supported for symbolic reasons. I know government mandated prices are bad policy. Always have been, always will be. Mandated wage laws lead to an increasingly paternalistic economy that stifles creativity and business creation. Getting people comfortable with mandated wages will lead to them getting comfortable with other laws too. Gas prices too high? Lower them by fiat! Salaries of managers too high? Cap them! Profits too high? Tax ‘em! It all leads to a long and treacherous road to serfdom.
Sanctimonious strutting by people supporting excessive government controls over the economy and of people’s private lives does nothing to address the important question of what causes prosperity. Forcing entrepreneurs to increase their costs will not do this. Only by advocating policies that increase the ability of the poor to produce more goods and services can their lot be improved. Disagreeing with people on whether the minimum wage is a good idea does not make people morally bankrupt. A morality play in which those who care crusade against those that do not makes for great theater, but awful economic policy. And those aren’t Republican values, they’re human values.
Mike, it baffles me how well-intenioned people cannot concede that point, and it is proof of how pervasive Marxist thinking has become. I hope you and others do not think my uttering such a statement is wacko. Many people believe in the exploitation of labor theory; they are taught it by the teachers in our government-run schools at every opportunity. Never mind that the theory is false.
I’m not so sure about the philosophical purity of our union leaders, who when they negotiate contracts with complicit and compliant organizations, tie their base wages to both the minimum wage and to the CPI, where an error of generosity can be three or four percent a year, which compounded over twenty years can yield a very big number, especially when pension contributions and other benefits are calculated from the first base number. (Let’s not be unfair to the unions: my own church has been in on this same racket for thirty years.) Walter Reuther said it plainly and honestly: we want a bigger piece of the pie.
Now, I’ve never quarrled with the idea of negotiating over prices, a free act if there ever was one. If some auto company wants to make a lousy car at a high price anywhere in the world, let them try, even if they do it in Detroit, or Sweden, or France, or Germany. Let them freely decide to pay $100 per hour to sit watching their machines produce scrap and an occasional engine that does not leak oil.
But do not pretend this increases the size of the pie.