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Saturday, October 17, 2015

The Minimum Wage Law


This enactment is beloved by many: students, clergy, journalists, most academics. The present essay is my attempt to interject some basic economics 101 into the discussion. The key element is that demand curves slope downward. That is, the higher the price or cost of anything, other things equal, the less anyone will buy. This is only a matter of common sense, which seems to fly out the window when minimum wages are discussed.

Senator Bernie Sanders wants to make tuition free at public universities. Does he think this will encourage or discourage people from attending them? Of course, the former: the lower the price of education, they more students will buy it.
New York City Mayor Di Blasio wants people to smoke fewer cigarettes. So, he raises their price through taxation. He also believes in a downward sloping demand curve: the higher the price, the less will be consumed.
Nor are these examples limited to tuition and cigarettes. They apply to encouraging people to eschew plastic bags, to buy local (tariffs on foreign goods). This understanding even applies to the labor market in areas other than minimum wages. For example, unions promote subsidies for learning skills and business corporations offer partial payments to gymnasiums and recreation centers, so that their employees will be healthier. The cheaper are these things, the more of them will be bought. This insight applies to pretty much everything under the sun.
If they applied this insight, most folks would bitterly oppose such legislation. For it is a vicious attack on the “least, last, and lost” of us, those at the bottom of the economic pyramid. It is a blatant violation of the “preferential option for the poor,” one of the basic elements of Catholic theology.  If the government raises wages by legislative fiat, fewer people will be hired, not more.
Why does this constitute an attack on the poor? The minimum wage does not require any employee to be hired. It mandates, only, that if he is taken on, then a lower bound on wages is applied. It is thus an unemployment law. It implies that low skilled workers will not get jobs. Suppose a worker’s productivity is $7 per hour, while the law requires a payment of $10. If a firm takes on such a person, it will lose $3 per hour. Of course no one can live well on $7 per hour. But, with a minimum wage law, zero will be earned, since he will become unemployed. It is no accident that the young, the unskilled, the downtrodden, inner city members, have unemployment rates in the stratosphere, something that simply did not occur before the advent of this malicious legislation. Then, there was no such strong association between skill level and unemployment.
Right now, however, the minimum wage law only attacks the unskilled, the poor, the members of the inner city, the young. However, attention, everyone: the minimum wage law is your enemy. Suppose it were raised to $100 per hour. Virtually none of us are worth that amount of money. Will this change in law help you? Posit that your productivity is only $60 per hour. That means, anyone hiring you at that wage will lose $40 per hour.  If they do, they will soon be visited by bankruptcy. The minimum wage is not a floor under wages, one that boosts them as the amount required by law increases. Rather, it is like a hurdle over which you have to jump in order to get a job in the first place and keep it. True, at its present level of $10, soon to be $15, the careers of most people will not be foreclosed. Only those with lower productivity levels below this economic barrier will be forced into unemployment.
Here is a famous quote from the Reverend Martin Niemöller: “First they came for the Socialists, and I did not speak out—Because I was not a Socialist. Then they came for the Trade Unionists, and I did not speak out— Because I was not a Trade Unionist. Then they came for the Jews, and I did not speak out— Because I was not a Jew.  Then they came for me—and there was no one left to speak for me.”
But this applies, as well, to the minimum wage law; initially, it was set at $.25 per hour, then $.40, then $.70. Nowadays, it is mandated in most places at $7, and $10, soon to be $15 everywhere. We can then say, First they came for all those with productivities below $.25, and consigned them to ignominious unemployment. Then they came for all those with productivities below $.40, and consigned them to ignominious unemployment. Then they came for all those with productivities below $.75, and consigned them to ignominious unemployment…. Then they came for all those with productivities below $7, and consigned them to ignominious unemployment. Then they came for all those with productivities below $10, and consigned them to ignominious unemployment. Then they came for all those with productivities below $15, and consigned them to ignominious unemployment. At this rate, one of these days these economic Nazis will set the minimum wage law at $100, and consign virtually all of us to ignominious unemployment.
This is a serious business. There is a reason the unemployment rate in our inner cities is so gargantuan. It is not because those who live there are lazy and shiftless. It is not because they are members of a minority. It is because their productivity is lower than the level set by the minimum wage. But no one is impervious to this threat, if the rate is set high enough. It is easy for those of us to say “This can’t happen to me.” But it can.  And it will, if this inexorable rise keeps occurring.
What of the few statistical studies that seem to show the very opposite? “There are lies, damned lies, and statistics.” When the minimum wage is raised from the $7 to $10, will the employee earning that amount be fired immediately? No. Action is not instantaneous in the marketplace. But he will be let go eventually, or the business will become bankrupt. If the econometric study is timed just right, it can appear to undermine the logic of economics 101.
According to most of these studies which purport to support this legislation, they concede that the minimum wage law will create unemployment for some 5% of the affected population (those with productivities at or near the level mandated by law) but will raise the wages of 95% of this demographic. This is indeed true, at least temporarily. But then, as businesses react to the new economic realities, more and more workers will be fired, or find it impossible to land a job in the first place. That is why unemployment is so high in the communities that suffer the most for it. But suppose, just suppose, that these econometricians were correct in their assessment: 5% of the people will lose their jobs, and 95% of them will benefit from wage boost and keep it.
Suppose I were to go to the inner city once a week or so and make this threat at the point of a gun: I rob one person of $95, and give $5 each to the next 19 people I come across. (Note to the New York Times: I am not making this threat. This is merely a hypothetical example, in order to make a point about economic reality in this case. On this see here, here and here.) What should the law do with me? Why, place me in jail, because I would be a thief. Well, how should we regard those responsible for this pernicious legislation, which even by admission of its own advocates, amounts in effect to a crime? If we follow the logic of the matter, we should do to them exactly what should be done to me in my hypothetical example. All those responsible for promulgating this malicious law should be placed in the clink, forthwith.
There are some who will say this solution is too radical; it is unjust. But, even in the best of cases for the law, even the one made by its advocates, it amounts to the theft of a livelihood against some 5% of the relevant population. In reality, given enough time for adjustment, a minimum wage law of $15 will unemploy all of those in this unskilled demographic, not merely 5% of them. And, why should the Bernie Sanders’s of the world be satisfied with a mere $15 per hour? (He is now calling for exactly this).  Pretty soon he will realize that no one can live decently on that amount of money. Surely, $25 would be better? And, then, on to the races? Why, not, indeed, $100 per hour? Or more? Why, we could all become rich, beyond the dreams of avarice, if wages could be raised one iota by legislative pen.
Interesting fact: neither he nor any of his fellow senators pay their interns this “living wage” or, indeed, anything at all. Thus, not only should he and they be placed in the hoosegow for being responsible for this economic outrage in the first place, they should also be incarcerated for violating this the very law they champion.
By the way, I still favor Sanders for the Democratic nomination for president, mainly due to foreign policy considerations. Of course he is a war-monger. But, he is less so than any of his competitors.  Let him, then, run for this office behind bars, along with all others responsible for the minimum wage law.

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