Opposite Day: Tyrone on the minimum wage

"Minimum wage, bah humbug.  It is easy to defend.  Tyrone snorts at you.

First let us clear out some garbage.  The minimum wage should not be $50 an hour, and simply citing this possibility does not serve as an effective reductio.  And yes racist South African labor unions supported minimum wages, but wouldn’t you expect them, vile as they may have been, to support higher wages in any case?

We know the empirical evidence on minimum wages is mixed.  I am familiar with the Card-Krueger smackdowns but at the end of the day you have to work hard to get a big effect on employment.  Most importantly, all of these studies miss the longer-run effects that make a legally binding minimum wage such a good idea.

Don’t obsess over static neoclassical economics, where you start with a firm, a competitive market, and a set of marginal products already in place.  Think dynamic and look at the longer-run.  If you ban jobs beneath some hourly wage, you will end up with more jobs above that wage.  Ex ante, companies can set up their production to mesh with high-wage rather than low-wage jobs.  Surely we should prefer an economy with higher marginal products, higher wages, and higher median income.  Yes this redistributes a bit of wealth from capital but what an efficient way to do so.  And we all know that long-run dynamic gains tend to swamp one-time static losses.

Don’t expect to pick up these effects in any study with a short time horizon.

Furthermore there is more slack in the system than many economic models would indicate.  As a young’un, I worked in a supermarket.  When they raised the legal minimum wage, they raised my wage as well.  I was happy.  No one fired me.

Minimum wages probably lower the net amount of government intervention in an economy.  Lower minimum wages would mean higher welfare payments to make up the difference.  Ever heard of EITC?  In reality, minimum wages and EITC work together to keep the poor at decent standards of living.  More importantly, they keep poor workers in the private sector rather than letting them become wards of the state.  Try living on the minimum wage (much less beneath it), and without the safety net of your parents, if you don’t get my point.

Perhaps you think the minimum wage is an excessively blunt policy instrument, given that many near-minimum jobs are held by upper middle class teenagers.  Fair enough, but this also means that the minimum wage doesn’t put many of those people out of work.  We can go back to focusing on the net effects on the poor.

Tyler, what is really your problem with the minimum wage?  Free market economists love to bash it because they can posture as friends of the poor.  They can pretend that basic economics has great relevance.  They can claim to know something useful, rather than facing the fact that opposition to big government really means opposition to massive income transfers.  Since the American public is not willing to go this route, free market economists have to focus their yapping on the minimum wage and the (actually quite small) benefits of free trade.

Tyler, don’t you agree?  Tyrone signs off."

There he goes again.  As a child, he would never even sit straight at the dinner table.  Readers, if you now wish to refresh yourself, try this, or perhaps even this.  And maybe someone over at CrookedTimber is up for Opposite Day, but on some other topic…?


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