To Confirm The Argument Against The Minimum Wage

An irate economist has written in to critique the earlier point about the minimum wage. My statement was that people being willing to work for less than minimum wage shows that we should and must abolish the minimum wage. For why should we prevent people from doing as they wish?

It’s not that people pay less than the minimum wage which proves we must abolish it, it’s that people work at less than the minimum wage which shows we must abolish the minimum wage.

To which we get this irate response:

Siri, what is economism?

Tim, this might be one of the stupidest things you have ever written. Here is why:https://t.co/8mlhIKB7Gx https://t.co/e0JT9TVmHy

— Paddy Carter (@CarterPaddy) March 9, 2018

In more detail:

Let’s just take a moment to glory is the sheer stupidity of this, shall we? “Evidence that people still turn up to work at less than minimum wage”, The Absolute Worst tells us, proves that we shouldn’t have a minimum wage. No, really. The discovery that wages would be lower in the absence of a minimum means we shouldn’t have a minimum (because naturally people would still turn up for work at lower wages, otherwise wages wouldn’t be lower).

 

This is “standard economics” of course, writes the man secretly paid by George Soros to discredit standard economics: the “very point of a minimum wage being that it is set above the market clearing rate.”

 

And what is the market clearing wage? Low enough that firms will profit from hiring even the most useless worker? Let’s say it’s £4 per hour. And what if we the citizens of the world’s fifth sixth largest economy decide that does not confer an acceptably high standard of living on our fellow citizens upon whom fate has not smiled? Now here’s some standard economics: you can’t say a damn thing about what we ought and ought not do, until you have defined a social welfare function you’re prepared to stand behind. It’s not too late to learn Tim, get reading! The idea was only formalised in economics in 1938, so we shan’t think badly of you for not having caught up yet.  

 

Of course if we don’t like outcomes under laissez faire then minimum wages are only one of a number of possible policy responses. But we might decide, for example, what level of income corresponds to a minimally acceptable level of welfare, set unemployment benefits (cash and in-kind) at that level and then pick a minimum wage that confers welfare somewhat above that. And of course in making that decision we’d want to know such things as how the demand for labour changes at different levels of minimum wage and other parameters in the economic equation, not to mention consider alternative interventions, but what’s for damned sure is that the Sage of the Algarve hasn’t proved anything other than his own ignorance of economics.  

 

[written in the style of ooh, I dunno, Tim Worstall writing about Richard Murphy]

To which the correct response is, you want people to have higher incomes then you pay those higher incomes yourself matey, not dump the costs upon everyone else. The heart being this:

And what if we the citizens of the world’s sixth largest economy decide that does not confer an acceptably high standard of living on our fellow citizens upon whom fate has not smiled?

That’s great, why not have a concern for the poor? The unskilled, those who simply cannot cut it in the modern world? There being a spectrum of such of course. From those who truly cannot, having been grossly disfavoured by the genetic lottery, up to those we’d probably prefer to tell to get up off their fat lardy arses.

But OK, some cannot – what should we do? Well, you get to vote with your money. That is, you want people to have higher incomes then you do one of two things. Cough up your own cash and give it to them. Or, given this democracy thing, you persuade a political majority that taxes must be instituted in order to redistribute to those poor.

What you don’t, or at least shouldn’t, do is insist upon a minimum wage to attempt the same goal. Partly because it doesn’t work – some of those poor will go from having low incomes to none. But also because there’s more we know about minimum wages. Those poor are much the largest consumers of the output of other low wage workers, so much of any price increase as a result falls on the very wallets of the poor. There’s also that moral point. Whatever you think of the incidence of a minimum wage’s costs no one at all argues that it falls equally upon the whole society. So why try to dump those costs on some fraction of the society when we are arguing that it is society as a whole insisting that those incomes should be higher?

Of course, it might be that the people would rebel at being asked to pay such taxes. But then that’s just a revealed preference that they don’t in fact care all that much, or enough perhaps, about those incomes of said poor. In which case why do you get to disguise the cost to them of your own moral preferences about poverty incomes by insisting upon the minimum wage instead of those open costs to their wallets?

And yes, this really is an argument that the minimum wage is immoral. The moral answer is to make it clear what people have to cough up to redistribute. And then, of course, see if they agree.