Politics & Policy

The Minimum-Wage Myths

The arguments in its favor are emotional appeals and distortions of economic reality.

The perennial fight over the minimum wage is once again in bloom, and the usual arguments will be rehearsed on both sides. Those against raising the minimum wage will cite Economics 101: Raise the price of something and demand will go down. Those in favor of raising the minimum wage will harrumph in the face of economics and declare that their opponents, and economics, hate poor people.

The purpose of this fight is not to hash out economic questions related to low-income people. The purpose of the fight is the fight: There is no minimum wage high enough to keep the Democrats from introducing an increase next year, because the point of bills hiking the minimum wage is to force Republicans to vote against them, which provides Democrats with a moment of cherished political theater. They do not give a fig about poor people — as everybody knows, the real minimum wage is $0.00, and more Americans today are making that than at any time in recent memory, which is what is meant by “record low workforce-participation rates.”

But let’s pretend like those pushing the new increase are not a gaggle of cynical charlatans building their political power on the backs of the poor and the unemployed and examine their arguments.

Why would you want to raise the minimum wage? A few possibilities:

1. Minimum-wage workers are worth more than we pay them. That is a meaningless statement; labor, like apples and oranges and widgets, is worth what you can sell it for. If you believe that we have a large supply of low-wage workers who are secretly more skilled and productive than they let on, you have to assume that everybody in the question — the workers, their employers, their employers’ competitors — has somehow overlooked that fact, but that our ingenious friends in Washington have special insight into the conditions of people they have never met and markets they have never operated in. That’s fanciful.

2. Slight variation: You might want to raise the minimum wage because you think that markets can set prices for most things but not prices for labor. This is contrary to pretty much all of the economic evidence in existence on the question, so maybe you want to refine that and argue instead that markets may do a pretty good job of setting prices for labor, but they don’t do a good job of setting prices for labor when those laborers are at the lower end of the market. Another way of saying this is that you believe that low-income people are too stupid and hopeless to negotiate appropriate, market-value wages for themselves, and that the vast majority of businesses that employ minimum-wage labor are operated by people too stupid to see that there’s a lot of higher-value labor out there for the taking that they are simply too thick to avail themselves of. But that isn’t really an argument for a higher minimum wage; it’s an argument for a more generous food-stamp program. It’s sort of uncomfortable to argue that low-income people are too stupid to see after themselves, but that is, after all, the assumption behind things like Medicaid and Section 8 housing vouchers and food stamps — if low-income people could be trusted to make appropriate choices about things like health care and housing, we could just give them money and let them make their own decisions about whether they need an extra $1 in health care or an extra $1 in groceries. In any case, it’s not likely that that millions of low-income people are too dumb and shiftless to seek higher wages but are smart and enterprising enough to compete for those higher-wage positions.

3. You might want to raise the minimum wage because you think that low-income people “should” make more money. The word “should,” however, has no meaning at all when it comes to questions of prices — if tomorrow people start paying more for Hyundais than for Ferraris, are we going to lecture them that the Ferrari “should” cost more? People assign their own values to things, and your opinion of the value they assign does not change anything about that. An hour of Bob’s labor is not more valuable just because you really, really wish it were so — if you really believed it were worth more, Bob would be working for you.

4. Maybe you think that raising the minimum wage is effectively “free.” That’s what is meant when people cite studies alleging that increases in the minimum wage do not cause higher unemployment or contribute to higher prices. That may be true in some narrowly defined circumstances; to be broadly true, it would have to be the case that higher prices do not correlate with lower demand — i.e., that everything we know about basic economics is wrong — and that prices of goods and services are not in the long run affected by the prices of inputs, which is contrary to common experience. Perhaps you also expect the price of gasoline to go down when the price of oil is going up — which very well may happen in the short term, but is less likely in the long term. And the “free” model of the minimum wage of course ignores what an increase would cost employers, but, thankfully, nobody cares about them.

5. Maybe you think the working poor deserve to have more money. If that’s your argument, then the most sensible policy is to simply write them checks. If you want to increase the purchasing power of low-income people who are employed, then you should give them money rather than trying to distort the labor markets in such a way as to get the money to them through indirect means with unintended consequences, including the possibility of higher unemployment. Nobody proposes this (or rather, proposes expanding our existing program that does this, the EITC), because nobody wants the cost of these subsidies to be known. If we wrote poor people checks (more checks), then that would show up on a budget somewhere; if we pass a law saying that other people, mostly firms in the private sector, have to write those checks, they don’t show up on the budget (the government budget, that is, the one we do together). And if they don’t show up on the budget, then that reinforces the illusion that this is effectively “free.”

6. Maybe you think that if we “gave” low-income people more money, then they would spend that money, stimulating the economy. No doubt they would; on the other hand, their employers would have spent that money, too, perhaps on things like hiring other people or expanding lines of business or developing new products. There is not much evidence that money spent by low-income people is more stimulating in the long run than is money spent by businesses.

That is, so far as I can tell, pretty much it. Most of the arguments for raising the minimum wage are variations on “I like poor people and I feel sorry for them,” which is fine, but the country and its low-income citizens would be far better off in the long run instituting something like Milton Friedman’s negative income tax than by monkeying around with the numbers, mostly after the decimal point, on low-income workers’ wages.

The real scandal is that so many Americans have labor that is worth so little. But that’s an indictment of the public schools and the welfare state, not of the mean meanies at Walmart.

— Kevin D. Williamson is National Review’s roving correspondent and the author of The End Is Near and It’s Going to Be Awesome.


The Latest