Something that annoys me in the minimum wage debate is that the anti-minimum wage folks assume that labor markets (not “the labor market” – there is no “the labor market”) works like other markets.
And there are really, really good reasons for that! But let’s just look at one facet/outcome of that.
If you asked me “in an ideal world, what would be the price of [just about anything],” my answer would be “nothing!” Food? Free! Furniture? Free! Clothing? Free! Computers? Free! Because free implies a defeat of scarcity – that one day we will have replicators and 3d printers and servile robots and abundant clean energy and almost all goods and services will be without cost. That’s utopia.
But if you asked me, “in an ideal world, what would be the price of labor,” I would never, ever say free. Because what economists call “labor” most people call “time” – a finite, substantial quanta of someone’s finite time on Earth.
The right way to think about this is the Star Trek universe, where almost all goods and services are provided costlessly by machines but people still put their time and effort into creative or rewarding projects, the kind of stuff we call today “artisinal production.” That stuff still “costs,” but its mostly a gift and barter economy where people brew their own delicious beer and give it to friends or trade it for delicious, home-distilled bourbon.
Now, the price of labor in our own, non-utopian world, has effects, large and small, on lots of things, and its not obvious what the best balance between the returns to labor vs. capital are, or the best mechanisms for obtaining them. But we also shouldn’t be trying to ceteris paribus drive down the price of labor like we should the price of chocolate or power cords or other commodities.
And because of the totally different way “labor” is conceptualized, and because of the totally different implications and underlying meanings of labor markets, they just don’t work like normal markets in so many key ways.
Put it this way: nobody thinks it’s morally wrong to prefer a brownie to a blondie or white fudge to dark fudge, but people do think its wrong to hire based on skin color. In fact it’s illegal, for very good reason.
When individuals have to cut back on expenditures, they don’t like it, but they do it; but bosses (at least good ones) agonize over firing employees and really loathe doing it.
When individuals have the chance to bargain or get a great deal on a good, they leap at the chance; but even when the economy is bad, employers do not take the opportunity to renegotiate salaries downward. If they have to, they’d rather lay off 5% of their workforce then give everyone a 5% pay cut.
And, just to finalize, think about how much people invest their self-worth into their career. Not that they should. But inevitably many do.
So labor markets are just not really like markets for goods and services at all, and people who insist that “fundamental laws of economics” mean that increased minimum wages absolutely must ceteris paribus reduce employment are making fundamental errors.