The Minimum Wage Law By Walter E. Block January 17, 2014 Email Print FacebookTwitterShare
The minimum wage on its face is an unemployment law, not an employment law. It does not compel anyone to hire anyone else. It only stipulates who CANNOT legally be employed: no one may be hired for less than the amount stipulated by law. If the minimum wage law is set at $10 per hour, the law does not require any employer to hire any employee at that wage level. It only FORBIDS employment contracts set at $9.99 or below. This is not a matter of empirical evidence, not that there can be any such thing in proper, e.g., Austrian economics; this conclusion is a matter of pure logic. We repeat: the minimum wage on its face is an unemployment law, not an employment law.
What about empirical studies (economic history, for praxeological economists)? Here, economists disagree. Some say there will be no unemployment effects whatsoever. That is, a person with a productivity level of $6 per hour will still be hired and paid $10 per hour, even though any such firm that does so will lose $4 per hour. Such “economists” are in a distinct minority. Other dismal scientists opine there will be very slight unemployment effect; some few unskilled workers will lose their jobs or not attain them in the first place; but a large number will retain their jobs and be paid more. Then there is a third or majority view: most economists conclude that this law will boost unemployment for those with low productivity, and will only raise wages for them temporarily, until employers can substitute away from the factor of production (unskilled labor) now priced out of the market.
What is the Austrian take on all of this? The praxeological view is that the minimum wage law will raise unemployment higher than it would otherwise be, in the absence of this law, other things equal, provided only that it is set above the level of productivity of at least one worker. This is an apodictic claim, not subject to refutation, falsification or testing. This claim is necessarily true, and yields knowledge about real world effects. Austrian economics is causal – realist, unlike the economics of the mainstream logical positivists, who recognize no economic law, only hypotheses to be tested, and if not falsified, then provisionally accepted.
Some economists who have recently signed this open letter in support of the minimum wage law have published introductory and intermediate economics textbooks. In those publications, they take the usual position that minimum wage legislation unemploys laborers with low skills. Thus, their textbooks blatantly contradict the open letter they signed. I take great joy in listening to and reading their responses to this charge that they are contradicting themselves. Talk about talking without saying anything.
What of the ethics of the matter? Here, again, there can be no controversy. The minimum wage law violates people’s rights to engage in consenting adult behavior. An employer and an employee agree to a wage contract of, say, $5 per hour. Both are considered criminals under this pernicious legislation. But it is a victimless “crime” to pay someone $5 per hour for his labor services, and/or to receive such an amount of money for working. Both parties agreed to this contract! Our society is now in the process of legalizing other victimless crimes, such as those concerning prostitution, drugs, gambling, etc. Many people favor “choice” when it comes to adult behavior without victims. The minimum wage law is a step backwards from these moves in a moral direction. And, yet, paradoxically, it is to a great degree precisely those people who advocate the legalization of these victimless crimes who are the staunchest supporters of the minimum wage law.
Posit that the “moderate” economists were right. A few people will lose their jobs, but the overwhelming majority would either find or keep their employment slots, at higher compensation rates. Suppose I were to go to the inner city (which contains a disproportionate number of the unskilled), and did the following. I went to one in every 20 people I met, and, at the point of a gun, I relieved them of, oh, $10,000 (40 hours per week time 50 weeks multiplied by $5 per hour). Whereupon I turned to the other 19 out of 20 people and dispersed these stolen funds amongst them. If I did so, I would be promoting the precise effects that the moderate members of the economics profession who are supporters of minimum wage claim will occur. Namely, this law, they contend, they concede, will hurt very few but benefit the many. But how would my excursion into the inner city, and my wealth transfer, be considered by law? Of course, I would be considered a criminal, and very properly so.
For reasons we need not discuss right now, the productivity of whites is higher than that of blacks. It is for this reason that the unemployment of the latter is higher than that of the former, actually, as an empirical finding, about twice as high. For reasons we need not discuss right now, the productivity of middle aged workers is higher than that of young employees, who are just starting out. . It is for this reason that the unemployment of the latter is higher than that of the former, actually, as an empirical finding, about twice as high. It is for this reason that the unemployment rate of black teens is roughly quadruple that of whites of mature years. All this stems from the minimum wage law serving as a barrier to entry, a hurdle, and not a floor raising wages. Supporters of the minimum wage, who just LOVE statistics, tend to shy away from this revealing data.
Who are the beneficiaries of the minimum wage law? Quo bono? This will come as a shock to some people, but the people who gain the most from this legislation are skilled workers, typically organized into labor unions. When they demand a boost in their own wages, the immediate response of the employer is to want to substitute away from this suddenly more expensive factor of production, skilled labor, and into a substitute for it; that is unskilled labor. There is more than one way to skin the cat. The same number of widgets might be able to be produced with 100 skilled and 100 unskilled workers, as with, for example, 50 of the former and 200 of the latter. If there is any such thing as fixed proportions in manufacturing and production, it must be a great rarity. How best to fight such an eventuality from the point of the labor union? One way to do so is to castigate as scabs” (why this is not an example of “hate speech” similar to the use of the “N” or “K” word is beyond me; well, not really) the unskilled laborers hired in response to the union’s demand for higher wages. But there are problems here. For one thing, these newly hired employees would be disproportionately minority group members. It really looks bad for liberals, “progressives,” to be fighting this particular demographic. For another, these people can fight back. If you slash their tires, and hit them over the head with a baseball bat, they can reciprocate. No; this will not do. Organized labor has come up with an ingenious counterattack. Are you ready for this? Please take a seat, for you are now in danger of keeling right over. Yes: the minimum wage law; that is the solution to this quandary for organized labor. There is perhaps no better way to eliminate competition than to price it out of the market. (Hint, to burger providers; if you want to adopt crony capitalism, try to get a law passed compelling the prices of competitive products such as pizza, hot dogs, to be raised ten-fold. You can claim it is for health reasons.)
Who else benefits from the minimum wage law? This is like asking, who gains from high unemployment rates of young people, and unskilled workers? When looked at in this manner, several candidates immediately come to mind, given that unemployment breeds boredom and criminality: social workers, psychologists, psychologists, prison guards, policemen, etc. I don’t say that all of these people favor the minimum wage law because it will feather their nests. I only say their financial situation improves from its passage, and therefore empirical research into this possibility might be fruitful.
Why do we have this law on the books if it is so evil, so pernicious? One reason, already discussed, is that there are beneficiaries: organized labor, and our friends on the left who support them. Another is of course monumental economic illiteracy. Obdurate economic illiteracy. I teach freshman economics at Loyola University, and I usually take a survey of my students on opening day. Typically, a large majority favors the minimum wage law, and they do so not out of malevolence. Rather, they really think that this law will raise wages and help the poor. My students think this law is like a floor rising, and thus raising everyone with it. They do not realize that a better metaphor is a hurdle, or high jump bar: the higher the level stipulated by the minimum wage law, the harder is it to “jump” into employment. This law eliminates the lowest rungs of the employment ladder, where especially young people can gain valuable on-the-job training, which will help raise their productivity. If this legislation were of such great help to the poor, I ask my students, why are we so niggardly about it? Why limit the raise to $10, or $12 or even $15, as some radicals favor? Why not really help the poor, and raise the minimum wage level to $100 per hour, or $1000 per hour, or maybe $10,000 per hour. At this point they can see that virtually the entire population would be unemployed, because it is a rare person who has such high productivity. But, then, hopefully, then can begin to see that a minimum wage of a mere $7 per hour is an insuperable barrier to employment for someone whose productivity is $4 per hour.
When the minimum wage was raised from $.40 to $.70 cents per hour (the largest percentage increase so far) we went from manually operated elevators to automatic ones, helping high skilled engineers at the expense of the unskilled manual operators. This transition took a few years, but that was the cause. Initially, before anyone could be fired, wages did indeed rise. If the present minimum wage goes from $7.25 to, horrors!, $15.00, people who ask if you want “fries with” that will be supplanted by self serves and automatic machinery which will then be competitive with labor, but cannot now compete with low skilled people. Those jobs will go the same place, namely, booted out of existence, as the ones that used to exist at gas filling stations.
What should be done? We should not raise the present national minimum wage from its present $7.25. Nor should we maintain it at that level. Nor should we decrease it (some politicians advocate a lower minimum wage, for example, $4 per hour, just for the summer and only for high school kids to help them get jobs; but to counsel such a course of action is to admit that the law is a hurdle which must be jumped over, not a floor supporting rises). We should instead eliminate it entirely, and sow salt where once it stood. More than that. We should criminalize passage of this law. That is, we should throw in jail, or deal with these miscreants as we would other criminals, all those responsible for the passage of this law and for its implementation, such as the legislators who passed such a law, the police who enforced it and the judges who gave it their seal of approval. After all, is this not the way we would treat a person who unemployed other people at the point of a gun? Suppose there were a law that explicitly did consign people to involuntary unemployment, not implicitly and indirectly as does the minimum wage law, but direcetly. That is, an enactment such as this: It shall be illegal to employ black people. It shall be illegal to employ white people. It shall be illegal to employ young people. It shall be illegal to employ old people. It shall be illegal to employ Jews. It shall be illegal to employ Christians. It shall be illegal to employ gays. It shall be illegal to employ heterosexuals. It shall be illegal to employ men. It shall be illegal to employ women. How would we treat all those responsible for the passage of such laws and for their implementation such as the legislators who passed such a law, the police who enforced it, the judges who gave it their seal of approval? Precisely, we would throw the book at them. We would penalize them to the fullest extent of the law. Why should we do any less for those responsible for the minimum wage law?
85 richest people are as wealthy as half of the world’s population
The extent to which so much global wealth has become corralled by a virtual handful of the so-called ‘global elite’ is exposed in a new report from Oxfam on Monday. It warned that those richest 85 people across the globe share a combined wealth, as much as the poorest 3.5 billion of the world’s population.
The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness. John Kenneth Galbraith
So? Are you ready to punish them and strip them of their earned income?
Did they work for it? Did they earn it?
If so, it's theirs ... not anyone elses.
We are advised NOT to judge ALL Muslims by the actions of a few lunatics, but we are encouraged to judge ALL gun owners by the actions of a few lunatics. Funny how that works.
So? Are you ready to punish them and strip them of their earned income?
Did they work for it? Did they earn it?
If so, it's theirs ... not anyone elses.
And if they stole it??? Should they pay it back to the rest of us? If they gained this wealth by buying politicians who will tilt the playing field away from others in support of the ultra rich, should they be held accountable?
Quoted Text
The 1970s had a confluence of events, such as increasing international trade, changing technology, oil crises, weakening of unions, etc., that contributed. However, the most significant trend was the decline over decades in income taxes on the wealthy from an unreasonable high of 92 percent in 1955 to a low of 28 percent during President George W. Bush’s administration. In short, the rise in inequality has not been due to a surge in laziness or the expectation of government handouts but rather is due to successful lobbying by the rich to stack the deck in their favor. Our government’s staggering debt is partly due to the failure to tax the rich enough.
The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness. John Kenneth Galbraith
the trade that we do via $$ instead of goods puts people under someone else...
there will ALWAYS be the 85 people.......
I'm in an income tax bracket because the government made that equation....and it's filled with VIRTUAL value...at any given time the leverage of value changes because of trade agreements/marriages/pay to play etc etc.......you know the less straw for the brick making makes for hard work....
we are the hebrew slaves in Egypt....when they were in the desert they wished they were in Egypt where the pots were filled with meat. They had jobs now didn't they? Moses shows up to offer a 'union' to get more than they had, to be free. they made a golden calf and worshipped it.....
I think there are plenty of homeless people who find our scouring around for pots of meat with value based on our income tax bracket, BIZARRE......
those 85 people are less of the problem than our fear of leaving Egypt is.....
...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......
The replacement of morality and conscience with law produces a deadly paradox.
STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS
I give 'far more'...... better quality.......and all needs than the government gives to the poor!!!!
The government should be ashamed of how they treat the 'real' poor.
They take lots-a-money from the working class and throw pennies to the poor.
GOV ALMIGHTY keeps the poor in the 'begging business'!
Our family has taken more folks off the welfare lines, fed, clothed, housed and found jobs for them than we have seen GOV ALMIGHTY programs do.
We do more and have better results with our money than GOV ALMIGHTY!!!
GOV ALMIGHTY keeps them poor!
We helped them UP and OUT!!!
And we have W-A-Y less money than GOV ALMIGHTY!!!
When the INSANE are running the ASYLUM In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. -- Friedrich Nietzsche
“How fortunate for those in power that people never think.” Adolph Hitler
And if they stole it??? Should they pay it back to the rest of us? If they gained this wealth by buying politicians who will tilt the playing field away from others in support of the ultra rich, should they be held accountable?
And if they stole it??? Should they pay it back to the rest of us? If they gained this wealth by buying politicians who will tilt the playing field away from others in support of the ultra rich, should they be held accountable?
Should the politicians that sold themselves to the highest bidder be held accountable? The bank bailout was the biggest heist in American history. Who has been prosecuted? Congress voted for legal theft. Obama still accepts those big Goldman Sachs campaign contributions, THEY ALL DO.
Enough with the phony outrage. You've supported this system of democracy and organized theft of the citizens since you've been on this board. Obama's nearly doubled the debt and I am no better off than 5 years ago. Actually, inflation caused my standard of living to decrease. Goldman Sachs, General Motors, and the rest are still fueling their private planes, thanks to a bailout courtesy of the 99%.
When are you going to realize Obama and the rest of these filthy politicians tilt the playing field TO BENEFIT THEMSELVES?
The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness. John Kenneth Galbraith
We are advised NOT to judge ALL Muslims by the actions of a few lunatics, but we are encouraged to judge ALL gun owners by the actions of a few lunatics. Funny how that works.
...but the political parties would have less money to line their pockets with.
Box hasn't come to terms with the fact that since the war on poverty the rich have only gotten rich, regardless the party affiliation. You would think with box's scientific mind, he could see this evidence and draw the logical conclusion that the system is rigged by both parties. Republicans and democrats bailout corporate banks with billions of taxpayer money, and he sits there droning on blaming republican. It's sad to watch a man with such an inability to deal with that reality.
...but the political parties would have less money to line their pockets with.
Box hasn't come to terms with the fact that since the war on poverty the rich have only gotten rich, regardless the party affiliation. You would think with box's scientific mind, he could see this evidence and draw the logical conclusion that the system is rigged by both parties. Republicans and democrats bailout corporate banks with billions of taxpayer money, and he sits there droning on blaming republican. It's sad to watch a man with such an inability to deal with that reality.
LOL! Cissy had nothing to post... so he posted it!
(If Cicero were paying attention, he would have noticed that I don't differentiate between Rich Republicans and Rich Democrats. Both buy politicians to keep adding to their wealth at the expense of the poor and middle class.... But of course, Cissy doesn't pay attention!)
The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness. John Kenneth Galbraith
LOL! Cissy had nothing to post... so he posted it!
(If Cicero were paying attention, he would have noticed that I don't differentiate between Rich Republicans and Rich Democrats. Both buy politicians to keep adding to their wealth at the expense of the poor and middle class.... But of course, Cissy doesn't pay attention!)
but you do frequently say it's rigged by the Reps as if they corner the market on controlled chaos-rigging....
...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......
The replacement of morality and conscience with law produces a deadly paradox.
STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS
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