I am genuinely grateful (and a little surprised) that Don Boudreaux has responded (and quickly!) to my response to his many posts re: the minimum wage. Firstly, I want him to know that I only referred to him as a “cantankerous archetype” in the most affectionate way. Secondly, while I am grateful he responded, and while he said quite a bit, I’m not sure he really said anything that directly responded to the point I was trying to make, which is that even should the President’s proposal become law (unlikely) that an hour of minimum wage work in the United States has been becoming more, not less, affordable over time even as the minimum wage is raised. His response to that is to conjure a fantastical and prima facie absurd and loathesome policy that he then equates to the minimum wage, a trick he has used before and one that, given my stated belief that differences in degree are equivalent to differences in kind, I obviously don’t find terribly convincing. In fact, I would rather respond to the first part of his argument, where he says:

The proposition that, ceteris paribus, the more costly it becomes to acquire some good or service the fewer will be the number of units, per period of time, of that good or service that people wish to acquire is not an ancillary or secondary proposition in economics. It’s foundational. So when someone argues that this proposition doesn’t hold for good X or service L, the burden of persuasion is on that someone to make a compelling case for such a startling proposition. And it is a heavy burden.

I’m first going to try and approach this on Boudreaux’s terms as much as possible, which means avoiding many of the good arguments in favor of a minimum wage, but does mean I get to use some basic economics, which is fun.

The Econ 101 rejoinder to Boudreaux is very simple: if you assume that demand for labor is inelastic, you can set a price floor and thus create a great deal of producer surplus at little change in quantity purchased.

Boudreaux isn’t exactly wrong about very much, per se – he is certainly right that the empirical evidence on the minimum wage is a scattershot, to say the least; requiring strong evidence before instituting new public policy isn’t unreasonable; and certainly even if you accept that a minimum wage won’t have a large disemployment effect, it may have some and therefore even a minimum wage that results in a net producer surplus to labor involves a trade-off between giving some, even most, low-wage workers more money and denying some, even a small number, employment opportunities, and that trade-off may not be adequately grappled with by minimum wage advocates.

The issue I have with Boudreaux is that he displays an extreme version of the disregard that many economists have for the social value of certain economic policies, as well as the detached way that “labor markets” are treated as if they are no different than markets for commodities. Boudreaux comes from a much more blue-collar background than I, so I don’t expect to come out ahead in any argument relating to the lived experience of those closer to subsistence of the minimum wage, but I will note an experience that I had in India a few months ago that could shed some light on the situation:

My wife and I were in Amritsar, and we wanted to rent an auto-rickshaw to take us from the central city back to our guesthouse. The drivers were waiting in an informal taxi-stand awaiting passengers. We approached one driver, and asked him to take us to the guesthouse. He cited us a certain price, which we felt was a little too high. But when we tried to bargain (which, as we learned, is the true national sport of India) the other drivers took note and quickly swarmed around us, ordering both us and the driver to cease negotiating and agree on the quoted price.

This informal cartelling/guilding was a kind of commitment mechanism. “We will all be better off in the long run,” the drivers seem to agree, “if we all refuse to accept no price below a certain level, even if some of us could sometimes be better off by taking a slightly lower price.” Note that demand for rickshaw rides in Amritsar is probably quite inelastic.

Note also the long history of organized labor fighting for restrictions on hours worked, which is strange if you think about it from a purely economic perspective (why shouldn’t a worker have the right to work more if they so choose?) but makes much more sense from a game-theoretic perspective, as Matt Yglesias notes on the subject. A minimum wage allows labor, especially low-skill labor, which now more than ever is a very dispersed interest, to reclaim some bargaining power against employers, who are much more concentrated (as well as well-capitalized) by essentially being tied to the mast.

Indeed, the minimum wage is more complicated than many advocates will have you believe; but it is also more complicated than many opponents would have you believe as well. In conclusion, I tend to think there is an optimal minimum wage or an optimal range of minimum wages, and both the current and proposed minimum wage are comfortably within it. Certainly, though, if Boudreaux and I were co-consuls of the American Republic and had to strike a deal, I would trade increasing the current minimum wage or maybe even repealing it in exchange for some other policy like a guaranteed income.

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