Thursday, December 5, 2013

Raise the Minimum Wage, Mr. President?

For about a year now, our "progressive" friends have been amping up a campaign to raise the minimum wage to $15.00 per hour.  Now President Obama is joining the chorus.  It's all part of the liberal war on "inequality."

This, of course, is shocking to me, because I thought that the science on the minimum wage was settled.  Simply put, the minimum wage does three things:

  1. It locks young, inexperienced people out of the job market.
  2. It helps institutionalize above-market union wages.
  3. It drives business into the informal sector.
That's what I wrote just out of the top of my head.  So what is the received notion, courtesy of Wikipedia?  Well, the answer is: it's complicated.  There are all kinds of dueling studies showing that the minimum wage does, or does not help.

But one effect that Wikipedia highlights is that increasing the minimum wage probably increases the wages of people already employed that have wages less than or near the newly legislated minimum wage.  And, it speculates, this would propagate upwards as employers more or less maintain the differentials between unskilled and skilled workers.

Of course, the problem is that the minimum wage is just one government intervention in the labor market.  Welfare -- in its many manifestations -- is another.  Welfare allows people to retreat from the labor market unless or until wages rates increased to make it worth while to get a job instead of reposing on benefits.  So you could say that, if you have a welfare system a minimum wage is superfluous since workers won't work for "chump change" if they can use welfare as a backup.

And there are other, secondary effects.  The various regulations and taxes on labor encourage marginal workers and employers to desert the formal sector and work "off the books."  What is the cost of that?  It's a good question.

The truth is that the hoary interventions of the welfare state, from minimum wage to licensing to credentialism to restrictions on firing for cause, will always be with us.  Whether or not they work to "help people" they certainly encourage the marginal workers that respond to identity politics and look for leaders to "fight for the people against the powerful."

Right now we have liberals all agreeing that we must "do something" about inequality.  It could not be, of course, that a century of liberal economic intervention that has brought about today's inequality.  It must be that the rich are exploiting the poor.  So more government intervention is needed to bring the GINI coefficient down.

Hayek spoke about this years ago.  Modern interventionism is built upon the fallacy that you can treat the economy as if it were a simple mechanical contraption.  To think that you can direct the economy from Washington DC is what he called "The Fatal Conceit."

And anyway, Democrats are going to need something to rally the troops in 2014 after the debacle of Obamacare.  What better than to box the Republicans into proving their lack of compassion over the minimum wage?  Who could, in all conscience, oppose raising the wages of the lowest paid?

The truth is that the lowest paid are caught in a dreadful quicksand.  What was advertised as a safety net has turned out to be a poverty trap.  But as long as activists can get attention and politicians can get elected promising free stuff, so long will we have a minimum wage.

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