The usual case against the minimum wage has three components:
- Minimum wages reduce employment among unskilled workers.
- Therefore minimum wages are bad for unskilled workers.
- Therefore minimum wages are bad policy.
The problems with this case are that
- Minimum wages might not reduce employment very much.
- Even if they do, that doesn’t make them bad for unskilled workers.
- Therefore we cannot conclude (via this route) that minimum wages are bad policy.
Minimum wages are bad policy, though — but for entirely different reasons.
I’ll get to those reasons shortly, but first let’s examine the traditional argument a little more closely. I’ll number my paragraphs to make it easier for commenters to respond.
1. A variety of researchers have reached a variety of conclusions about the employment effects of the minimum wage. Among the most careful and thoughtful of those researchers are David Neumark and William Wascher, who in their recent book on the subject, conclude that minimum wages “reduce employment opportunities for less-skilled workers and tend to reduce their earnings; they are not an effective means of reducing poverty; and they appear to have adverse longer-term effects on wages and earnings, in part by reducing the acquisition of human capital.”
2. Thus, in particular, when Paul Krugman tells you that “there just isn’t any evidence that raising the minimum wage near current levels would reduce employment”, he is, not for the first time (and not even for the first time this week) being dishonest — though this time is a little different, since he’s now relying more on his readers’ ignorance than their stupidity.
3. That having been said, Bob Murphy has just made a good prima facie case for a substantial effect on teen unemployment by observing that of the 19 states with higher-than-federal minimum wages, six are among the top-ten for teen unemployment, while only one is among the bottom ten. I calculate the probability that this could have happened by chance at just a hair under 1%. Of course, one can imagine explanations other than “minimum wages cause unemployment” (maybe unemployment causes states to raise their minimum wages?) but it’s hard to imagine one more plausible than the obvious.
4. Sometimes, unsophisticated observers will point out that the last time the minimum wage went up, the local McDonald’s was not observed to lay off any workers. This of course ignores the question of how rapidly McDonald’s will hire new workers, and the even more important questions of how many McDonald’s there will be in the long run, and how they’ll eventually adjust their production methods so fewer workers are needed.
5. All of that having been said, there are honest and competent researchers who have gotten results different from Neumark and Wachsler’s, so I don’t think we can say we know that minimum wages substantially affect employment (though I know where I’d place my bets).
6. And anyway: Even if minimum wages do substantially reduce employment among teenagers and/or other unskilled workers, it does not follow that teenagers and unskilled workers should oppose the minimum wage. If the minimum wage kills jobs, it kills minimum wage jobs, which is to say that it kills jobs nobody wants very much anyway. To put this another way: If you’re currently making $8.50 an hour, and if a $9 minimum wage comes packaged with a 10% chance you’ll lose your job, that’s a gamble you might happily accept. The upside is an extra 50 cents an hour, and the downside is unemployment — which isn’t much worse than working this lousy job.
7. If you want to know whether the minimum wage is bad for unskilled workers, then, the right thought experiment is to imagine yourself as a slightly-below-minimum wage worker who is well-informed about how the minimum wage affects your employment prospects, and ask yourself whether you’d still welcome an increase. I don’t know what the outcome of that thought experiment would be.
8. Therefore, the argument at the top of this blog post is not a good argument against the minimum wage.
9. But minimum wages are still bad policy, for another reason. Namely: If we’re going to transfer income to low-wage workers, it’s both fundamentally unfair and politically unwise to put the entire burden of that transfer on a relatively small segment of the population (namely the owners and customers of businesses that employ a lot of low-wage workers). The right thing, given that we’re going to make this transfer, is to fund it as broadly as possible — say through an increase in the Earned Income Tax Credit, which comes out of general tax revenues.
10. I used the phrase “fundamentally unfair and politically unwise”. I’ll expand on both points, starting with fairness. When we collectively want a whole lot of 18-year olds to form an army, do we put the entire burden of that desire on people who happen to be 18 years old, by conscripting them at zero wage? Or do we think it’s fairer for those of us who enjoy the protections of that army to bear the cost through the tax system? When we collectively want to convert farmland to parkland, do we put the entire burden of that desire on people who happen to own farms, by taking their land without compensation? Or do we think it’s fairer for potential park-goers to pay for that land through the tax system? When we collectively want to raise the wages of unskilled workers, should we put the entire burden of that desire on those who happen to employ unskilled workers? Or is it fairer for those who have collectively made this decision to share the burden?
12. Here’s, to me, the main point: The owner of your local McDonald’s employs, say, 6 low-skilled workers, who are (at least slightly) better off because he’s there to employ them. What have you done for low-skilled workers lately? Let’s suppose your best answer is “nothing”. Then, if we’re going to try to do something additional for low-wage workers, shouldn’t it be your turn, rather than the McDonald guy’s turn, to make a contribution?
13. An analogy: 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)? Some people voluntarily pay wages to unskilled workers. If we collectively decide that we need more wages paid to unskilled workers, should we turn to the people who have been paying wages by choice and demand that they pay more? Or should we decide that maybe the rest of us should pitch in as well (say via the Earned Income Tax Credit)?
14. Fairness tells me that the cost of a widely-supported program should not be dumped on a small segment of society, and moreover that it especially should not be dumped on that small segment of society that has already helped to alleviate the perceived problem (i.e. those who have already been providing jobs for unskilled workers) — just as the burden of increased park cleanup should not fall on a small segment of society and especially not on those who have been contributing to cleanup all along. Political wisdom tells me the same thing. It’s very easy to support programs that other people will have to pay for. But voters, like everyone else, should bear the costs of their own decisions. Letting people vote for expensive programs that “somebody else” will finance is a good recipe for getting people to vote irresponsibly.