The worst argument against raising the minimum wage
I completely understand the basic argument against price setting, and I agree that, in general, raising the minimum wage will increase unemployment. I also understand that under particular conditions, that might not be true. For instance, if insufficient aggregate demand is the key problem in an economy, it is certainly theoretically possible that an increase in the minimum wage could result in increased employment.
On the whole, I am inclined to think that price setting by the government is generally a bad thing, and that there are much better ways to help the poor than an increase in the minimum wage, such as providing more public goods and free basic life requirements*, or eliminating barriers that prevent entrepreneurial activity on the part of those less adept at filling out government forms. (One might notice how much better the poor are at entrepreneurship in the black market, where all they need to know is how to satisfy their customers, than they are in the "legitimate" market.)
But an utterly absurd argument against raising the minimum wage I often see put forward contends that, if raising the minimum wage from seven dollars an hour to eight dollars an hour is good, why not just raise it to $1 million an hour?
Right: If I have a friend who seems to be wasting away on a diet of 1000 calories per day, and I recommend that he up his intake to 2000 calories per day, it is a good counter-argument to ask me why I just don't recommend he go up to 1,000,000 calories per day.
* Let the market set prices according to market principles, but provide plenty of free libraries, so the poor have access to the Internet and books, plenty of free health clinics, so the poor can get healthcare, plenty of free soup kitchens, so the poor can get nutritious food, great parks, so they can enjoy nature, and so on: then, if someone takes on a job at two dollars per hour, they will not be living in dire conditions. And the freedom to take on a job at a very low wage may be the very thing that allows a person to gain skills that lift them out of poverty.
On the whole, I am inclined to think that price setting by the government is generally a bad thing, and that there are much better ways to help the poor than an increase in the minimum wage, such as providing more public goods and free basic life requirements*, or eliminating barriers that prevent entrepreneurial activity on the part of those less adept at filling out government forms. (One might notice how much better the poor are at entrepreneurship in the black market, where all they need to know is how to satisfy their customers, than they are in the "legitimate" market.)
But an utterly absurd argument against raising the minimum wage I often see put forward contends that, if raising the minimum wage from seven dollars an hour to eight dollars an hour is good, why not just raise it to $1 million an hour?
Right: If I have a friend who seems to be wasting away on a diet of 1000 calories per day, and I recommend that he up his intake to 2000 calories per day, it is a good counter-argument to ask me why I just don't recommend he go up to 1,000,000 calories per day.
* Let the market set prices according to market principles, but provide plenty of free libraries, so the poor have access to the Internet and books, plenty of free health clinics, so the poor can get healthcare, plenty of free soup kitchens, so the poor can get nutritious food, great parks, so they can enjoy nature, and so on: then, if someone takes on a job at two dollars per hour, they will not be living in dire conditions. And the freedom to take on a job at a very low wage may be the very thing that allows a person to gain skills that lift them out of poverty.
Interesting point. It is meant as a reductio of course. However it does sort of assume everything is linear. And of course not everything is.
ReplyDeleteYeah, but you should assume it's linear until somebody demonstrates that it's not in a give case. Eating too much obviously has diminishing returns, so no need to demonstrate it, but it's not obvious that that's true regarding wages floors.
DeleteWhy should we assume linearity? Very few processes in the world are linear: it would seem we should assume the opposite.
DeleteYeah, but you should assume it's linear until somebody demonstrates that it's not in a give case. Eating too much obviously has diminishing returns, so no need to demonstrate it, but it's not obvious that that's true regarding wages floors.
DeleteDoesn't the Austrian school sort of not assume everything is linear?
I've used the argument myself a couple of times when the other person argues as if the wage doesn't matter at all, i.e. companies will hire people if they "need" them regardless of the price. Don't see why the counter-argument is so bad.
ReplyDeleteOK, that is an counter-argument to something different, not a counter-argument to the mere existence of a minimum wage. So, sure, if you use it for a different purpose than I was talking about, then my criticisms don't apply. That is not very surprising.
DeleteI disagree Gene. By asking "why not raise it to $1 million per hour?" one is forcing the proponents to think about costs as well as benefits, and to wonder whether the costs might exceed the benefits at some level, and whether they already exceed the benefits at the current level.
ReplyDeleteThere is something to be said for pushing *all* arguments to extremes, just to see where and why they might break down. If targeting 2% inflation is good, why not target 100%? An advocate of targeting 2% inflation (as opposed to 0%) ought to be able to give some sort of explanation for why 2% is better than 100%.
Just an opening move in a Socratic(?) dialogue?
Nick, I quite agree that if the question is asked that way, it is unproblematic and useful. I was addressing those who employ it as a knock-down argument against any minimum wage increase, an employment I have seen!
DeleteSuppose for a moment that the Global Financial Crisis was an indication of Global Economic Misunderstanding. It might be true then, that we tend to look at problems the wrong way. "The difficulty lies, not in the new ideas, but in escaping from the old ones..."
ReplyDeleteImagine it is true that a viable economy requires a variety of monetary balances each to remain within a given range -- an optimum quantity of money, an optimum level of private debt, an optimum range for inequality of wealth and income...
In such an economic system one could look upon the minimum wage as a range-limiting construct. But, to make it work, a maximum-income construct would also be required.
The discussion would be different then, no?
In the case of calories, the response would be that eating 1,000,000 calories a day would kill you. Would making a million dollars an hour kill you?
ReplyDeleteMy problem with using a $1,000,000 an hour minimum wage as an example is that there isn't enough money circulating to pay everyone that wage. But asking "why $30 an hour?" or thereabouts seems perfectly reasonable.
Of course, it is easy to increase the money supply to whatever level we need.
DeleteBut I wasn't talking about asking a question: I was talking about treating the question as a knock-down argument against any increase in the MW.
Of course, it is easy to increase the money supply to whatever level we need.
DeleteSure, but then you'd get into all sorts of side issues about what the real value of the minimum wage would be in that situation, and I think it would be a distraction.
I was talking about treating the question as a knock-down argument against any increase in the MW.
For most any argument, there will be people who deploy that argument stupidly. I try to focus on them as little as possible.
But wait... so you are saying this IS an argument rather than just a good thought exercise?
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