Saturday, July 24, 2010

Two Questions

The minimum wage is one of those issues that some people can’t talk about without a flare of righteous indignation. Try announcing at a dinner party that you are opposed to the government’s mandating a minimum wage and watch how jaws drop and a freeze settles over the room. “You’re not one of those people, are you?” a friend said to me the last time the topic came up, a look of appalled disdain settling on her face as if I’d just told her I favored pedophilia or eating puppies.

This is an issue that separates people who believe in economics from people who don’t. Or maybe just people who are patient enough to work through economic arguments from people who aren’t. Most people, it seems, aren’t, to judge from the treatment you get if you try to make the case against the minimum wage.

The case is, of course, that imposing a minimum wage costs jobs at the low end of the scale. To an employer, some jobs are only worth doing if they can be done cheaply; the workers you pay the least tend to be doing the jobs that are least vital. If you suddenly have to pay them more, you’re likely to decide that you don’t really need that outbuilding painted; it can wait till next year or maybe forever. Or you’ll hire one or two fewer migrants to get the crop in and go back to having your wife and kids pitch in. In either case, the guys you let go are probably not high-demand workers; the people who lose jobs due to the minimum wage are among the most vulnerable people in the work force.

There’s plenty of evidence for this. A study from Ball State University (available for download here) concludes that minimum wage increases in 2008 and 2009 cost 550,000 part time jobs and points out that "teenage workers, especially minority teenagers, bear the bulk of minimum wage job losses."

In other words, the minimum wage is most likely to hurt black teenagers. This, of course, is not what you want to hear if you're a Democratic politician who's made a career out of promising to help minorities. Maybe that's why Democrats work so hard to demonize opponents of the minimum wage: they know it doesn't stand up to scrutiny. It is a rare politician that attempts to defend the minimum wage on its merits.

Now, you can argue that the trade-offs involved are worth it, that it's better to increase the rewards of work and maintain more people on the dole. You can even come right out and say that no job at all is better than a poorly paid job. I don't buy that, but at least it's an argument and not an ad hominem attack.

But you can’t simply deny that people lose jobs when the minimum wage rises above the market rate for low-skilled labor. The economic logic and the real world evidence say they do.

There are two questions to ask anyone who favors the minimum wage. The first is, why does every minimum wage law include a lengthy list of exceptions? You can see a list of those exempt from the federal minimum wage here. The list includes, among others, "employees of certain seasonal amusement or recreational establishments" and "casual babysitters and persons employed as companions to the elderly or infirm". The loopholes, of course are an acknowledgment on lawmakers’ part that the minimum wage kills jobs at the low end of the scale. The legislators know that some jobs will simply disappear if employers are forced to pay workers more than they’re worth. They can't admit that, but they know it. So they carve out exceptions, and they never talk about them much above an embarrassed mumble.

The second question to ask is: Why does anyone make more than the minimum wage? If we need a law to force employers to pay us a certain minimum amount, why does anyone make even a penny more than this amount? Most of us, in fact, make more than the minimum wage. How is this theoretically possible, if stingy employers have to be forced by government action to pay their employees what they're worth?

The answer, of course, is that they don't. Employers always try to pay workers what they’re worth. Sometimes their calculations are wrong, as when they pay over-the-hill sluggers millions to bat .220, but they always try. The uncomfortable truth is that some workers are worth a whole lot, and some aren’t. If you want higher wages, the best thing to do is to make yourself more valuable to your employer, by increasing your skill level (get that degree!), upping your productivity (spend less time on Facebook!) or marrying the boss’s daughter (sadly, an option available only to a few).

Unfortunately, another thing you can do is pressure your legislators to force your employer to pay you more. That will raise wages for some people, but you’d better be careful about what you ask for: if you’re near the bottom of the scale, you might find that your employer now deems you not worth the new higher wage.

Now, until you have considered the above two questions, do me a favor and save the attitude. We can have a civil discussion about trade-offs and the best way to provide jobs for marginal workers and so forth and so on, but you can’t hit me with that look of appalled disdain. You can’t write me off as a heartless right-wing ideologue. You have to acknowledge that in the real world, economic policy has economic consequences, and you can’t choose simply to ignore consequences that you don’t like.

We have minimum wage laws because most people are unwilling to think through the economic consequences, and politicians like easy legislative fixes, even if they're illusory. Politics trumps good economic policy every time, and the prevalence of minimum wage laws is exhibit number one. This is an issue that should be argued dispassionately on its merits, but human nature is such that people will gasp in horror and label you a capitalist pig instead of confronting the evidence and the arguments. Don’t let them get away with it.

Sam Reaves