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October 2000
Volume 18, Number 10

 

Heritage Stumbles on Minimum Wage
Walter Block

 

The Heritage Foundation is no flaming libertarian organization. Not for them the radical privatization of such things as bodies of water, roads, even social security, much less courts, armies, and police. 

But they are, after all, a conservative organization, so a person would think he could rely on them, at least, to be sound on the issue of minimum-wage legislation. Even liberal economists, for goodness sake, know that this law prices low productive workers (read: some minorities, teens, school dropouts, the handicapped, and other clients of the welfare state) out of the employment market, consigning them to the forced idleness of unemployment. 

It appears, however, that Heritage cannot be wholly relied upon, fully, even on this question. 

They start out, reasonably enough, it might be conceded by those more charitable than myself, with their headline: "Why Congress Should Consider Alternatives to Raising the Minimum Wage," (The Heritage Foundation Executive Memorandum #627, September 30, 1999). Good; certainly it would be a move in the wrong direction to raise the level at which the minimum is pegged. 

But even here, a quibble: why worry about raising the minimum, when the only just and economic policy would be to eliminate it entirely? 

But perhaps this criticism is unwarranted. I am not a member of the inside-the-beltway crowd. I therefore plead a lack of sophistication. I am, admittedly, not current with the need of the cognoscenti to move the debate a centimeter or so to the right, and never, never, never, ever to challenge basic postulates. Radical maniac that I am, I thought it reasonable to tell the truth on this matter, allowing the chips to fall where they may. 

Mea culpa. 

But what, then, are we to make of the following statement by the authors of the piece, Stuart M. Butler, Ph.D, and Angela Antonelli: "In a strong economy with a tight labor market . . . raising the minimum wage from $5.15 to $6.15 per hour . . . may seem a harmless way to boost incomes. But in the next economic downturn, this extra cost of living could mean pink slips for many of those same Americans a rise in the minimum wage is intended to help." 

To say this is to make not one but several fatal concessions to this pernicious law. First of all, what is this "intended to help" business? Only terminally ignorant people think that the minimum wage law arises from benevolence. All those who have so much as taken a basic course in economics 101 know full well that the motivation behind these deleterious enactments is to artificially boost the wages of the low-productivity workers who compete with big labor, thus clearing the way for increases in their pay packets. 

This law is a sop to a large constituency of the Democratic party, labor unions. Why else would these highly-paid workers, earning far in excess of either $5.15 or $6.15, be so intent upon "raising" the remuneration of those so far below them in the labor pecking order? As every freshman economics student knows, if an artificial, government-mandated raise in wages can actually help its intended "beneficiaries," why not raise it to $1 million per hour, and be done with the economic problem entirely? 

A second mistake, and perhaps an even more serious one because of its presumed complexity, is this distinction between the boom and the bust phase of the business cycle. It is a completely artificial one. The minimum wage effectively unemploys all those whose productivity lies below the level pegged. In other words, at a minimum wage level of $5.15, all those with productivities of less than that amount are unemployed, assuming profit maximization behavior on the part of employers. 

With a minimum of $6.15, there will be an additional cohort of jobless people, those with marginal productivity of anywhere between these two amounts. True, this holds precisely true only in equilibrium, but there is no reason to think that the economy is more or less out of equilibrium in the boom-or-bust phase of the cycle. Therefore, the distinction offered by Butler and Antonelli is a spurious one. 

An implication of the Heritage Foundation Executive Memorandum is that if, somehow, we could be assured of continual economic upturn, then the minimum wage law would be a welcome one. Nothing could be further from the truth. 

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Walter Block, a senior fellow of the Mises Institute, is the economics department chairman at Central Arkansas University (wblock@uca.edu).

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