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:

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.

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jgh
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jgh

If customers want the workers they buy goods from to have a higher income, then bloody well cough up and pay them by paying more for the goods.
If taxpayers want the workers in general to have a higher income, then bloody well cough up and pay the taxes to give to them to increase their income.
There’s no other choice that isn’t “*I* want *YOU* to indulge *MY* demands”.

Spike
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Tim has ably made the case for enabling labor to be bought and sold on conditions acceptable to both parties. His detractor is trying to make the case for himself looking compassionate, such as by a collective-identity appeal to “we the citizens of the world’s fifth sixth largest economy.” Yes, necessarily at someone else’s expense. PS – There really is no floor for the “most useless worker,” as in my experience, one’s productivity can be highly negative, requiring the full-time work of more than one productive person to cancel out. See Miss “hire me, get a discrimination lawsuit” nearby.

Twatting on Timmy
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The minimum wage was one of the great successes of the Labour governments between 1997 and 2010. It was universally condemned when proposed, with claims being made that it would create mass unemployment and harm business, but neither happened. The real wages of many were increased as a result of that legislation, but it remains the case that a minimum wage of only just over £6 an hour is far too little to ensure most people, even people living by themselves, can sustain themselves without risk of being in relative, and sometimes absolute, poverty. As a consequence those employers paying… Read more »

NiV
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NiV

So far as I can tell (it isn’t really clear) his argument is that it depends what your social values are. The problem with this argument being that you’re not actually disagreeing with him about the social value of relieving poverty. You’re just disagreeing about whether minimum wage laws are the best way to achieve that. Since minimum wages increase poverty and decrease employment, as well as restricting poor people to outcomes they like even less than laissez faire (judging by revealed preferences). “And what is the market clearing wage? Low enough that firms will profit from hiring even the… Read more »

Ambrose Murphy
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Ambrose Murphy

But we legislate all kinds of things for a small business that have a cost to only that kind of small business, like health and safety rules, without (I think) the argument being that the cost of compliance should be paid by general taxation and not by the employer. Ditto non-Pay (but very pay-like) rules for all employers like overtime, vacation time and bank holidays. why is it so different – so differently bad – for minimum pay?

NiV
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NiV

“why is it so different – so differently bad – for minimum pay?”

It isn’t any different. The same argument applies to mandating H&S, vacations, maternity leave, etc.

Ambrose Murphy
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Ambrose Murphy

I think so, too, NiV, but I don’t think Tim would normally advocating dropping all health and safety and so on and leaving it all up to the market. we know from the 19th century – or 20th century – that employers will break rules and employees will work out of desperation and people will die in fires trapped by blocked fire-escapes. So I think fall back on the smaller argument that minimum wages cost jobs, which then mandates a trade off, a sliding scale, rather than the absolute position.

NiV
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NiV

Well, Tim I’m sure can speak for himself. But it’s how I would interpret his (lengthy) discussion here:

http://www.timworstall.com/2012/02/02/in-which-some-twit-called-mike-daisey-takes-me-to-task/

For us to insist upon greater safety than those exposed to the risks insist upon is, well, colonialism, isn’t it? For we are imposing our risk/income desires on others who have a different set of desires.

Ambrose Murphy
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Ambrose Murphy

Tim often chooses not to, but point taken – I like the man, and don’t usually think he takes a balls-out libertarian position on this stuff. On the other hand, he is logical, so maybe…

NiV
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NiV

Agreed. Tim’s not a libertarian purist – not as much as I am, for example. But he’s a hell of a lot closer to it than most pundits, especially on economic matters. I like him, too.

jgh
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jgh

My first thought is that H&S etc is a uniform cost on all business, but minimum wage is a cost only on those business with low-value employment. The minimum wage isn’t going to be a cost to the employment of Facebook engineers, but is going to be a cost to the employment of corner shop staff. The counter argument to Tim’s position is that neither the populous as a whole, nor customers paying prices should pay for the wages of the low-paid. So if nobody is prepared to pay those wages, how are they paid? It just increases the costs… Read more »

NiV
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NiV

“The minimum wage isn’t going to be a cost to the employment of Facebook engineers, but is going to be a cost to the employment of corner shop staff.” To some degree, but it’s mainly going to be a cost to the low-paid workers. The corner shop is not going to pay people more than their work is worth. They can partially compensate by shrinking their business, employing fewer workers. The others will either end up unemployed, or in even worse jobs. And when there are more workers competing for not enough jobs, they find other ways to reduce the… Read more »