Someone once asked me why economists care so much about the minimum wage. It reduces employment for the poor, to be sure, but the efficiency effects are probably pretty small compared to the effects of other policies. So why do economists care so much about the minimum wage when there are other policies that inflict greater damage?
Its a good question, and an important one. The welfare loss might be smallthough this is itself debatablebut the relevance of economic thinking is what is important. Beyond its consequences for the poor, I care about the minimum wage because it brings into high relief the fundamental differences between the anti-economic way of thinking and the economic way of thinking.
The anti-economic way of thinking sees the minimum wage as a policy whereby those endowed with Goodness and Mercy redistribute possibly ill-gotten wealth from the rich to the poor and protect the weak from exploitation. According to this view, the only reasons to oppose the minimum wage are ideology and sheer meanness. Just as the only reason someone could possibly oppose a war is because he or she hates America, the only reason someone could possibly oppose the minimum wage is that he or she hates poor people. Or so some might think. The economic way of thinking sees the minimum wage as exactly what it is: interference that destroys wealth, encourages wasteful rent seeking, and hurts exactly the people it is alleged to help.
Recent data back this up. In a recent Employment Policies Institute study, economists Wiliam Even and David Macpherson argue that the burden of the minimum wage on young African Americans is particularly heavy. Even and Macpherson point out that employment among African American males between the ages of 16 and 24 is disproportionately responsive to the minimum wage. They argue that a ten percent increase in the minimum wage would reduce employment by 2.5 percent for white males between the ages of 16 and 24, 1.2 percent for Hispanic males between the ages of 16 and 24, and 6.5 percent for African American males between the ages of 16 and 24. The consequences have been considerable. Professors Even and Macpherson estimate that in the 21 states fully affected by the federal minimum wage increases in 2007, 2008, and 2009, young African Americans lost more jobs as a result of minimum wage hikes than as a result of the macroeconomic consequences of the recession.
Economists usually cast the employment effects of the minimum wage as a case of the unintended consequences of well-intentioned policies. When I read this paper by Thomas C. Leonard, however, I learned that history tells a different story. Some of the earliest proponents of minimum wages and other labor market interventions were eugenicists; they saw the disproportionate burden on low-wage races (their term) as, to borrow a phrase from David Friedman, a feature of the policy rather than a bug. The minimum wage was (and is) more than just lousy economics. It was (and is) an instrument of active oppression.
One could argue that the lost gains from trade attributable to the minimum wage are relatively small. The burden is likely to be larger than it might at first appear because resources that cannot be rationed by the price mechanism will be rationed by other means, and both firms and employees will waste a lot of the prospective gains from trade by waiting, fighting, or both.
One could also argue that the jobs we lose are pretty lousy anyway, so we probably wont miss them. I find this questionable because the person who took that lousy job demonstrated by his or her choice that he or she preferred the lousy job (with lousy wages, lousy hours, lousy working conditions, etc.) to the alternatives. The minimum wage assumes that someone is blessed with insight that gives him or her the right to substitute his or her judgment for anothers, and to do so by force.
I oppose minimum wages for a couple of reasons. First and most obviously, they hurt the poor. Second, the minimum wage is one of the most visible ways that the anti-economic way of thinking manifests itself in the policy arena. If we are going to make policy that privileges the wants and needs of the least of these among us, then the minimum wage has to go.
Ive written on minimum wages before (1, 2, 3basically an annotated bibliography for 24, 5, 6). Advocates of the minimum wage might respond by citing Card and Kruegers study of minimum wages. I respond with haiku:
What? Card and Krueger?
Ill see that, and Ill raise you
|FCO|EmphasisNeumark and Wascher.|FCC|
Correction: the first version of the article said Economic Policy Institute when it should have said Employment Policies Institute.