Wednesday, April 29, 2015
How can you tell an American progressive from an American radical? A progressive laments the condition of working people and proposes to further empower the government. A radical laments the condition of working people and proposes to empower individuals by diminishing the power of government.
Of course government power and individual power differ in kind: government power is the legal authority to compel peaceable people through threats of violence. Individual power is the freedom to cooperate with others, say, through exchange in the marketplace.
The movement to raise the minimum wage to $15 shows the difference between progressives and radicals. Despite good intentions, calling on government to set a minimum wage merely affirms the power of politicians, bureaucrats, and the ruling elite generally while leaving low-skilled people dependent on their legendary benevolence.
In contrast, the radical understands that if low wages are a persistent intergenerational phenomenon, the problem is likely institutional and can’t be solved by hiking the minimum wage. Common sense ought to tell us that. Wages are the prices employers pay for labor services. We usually understand that if the price of a product or service goes up, people demand a smaller quantity (other things equal). We even recognize this in the public-policy arena. When the anti-tobacco folks want to discourage people from smoking, they demand higher taxes on tobacco. (Not that this is good public policy.)
Why do people forget the Law of Demand when low-skilled labor services are under discussion? Doesn’t it stand to reason that if the government mandates a higher price (wage) for low-skilled labor, buyers (employers) will demand smaller quantities of it (hire fewer workers)? Why would this particular law of human action be different in just this one area? That makes no sense. It at least requires an explanation.
Opponents of the minimum wage often challenge its advocates by arguing that if $15 an hour is good, wouldn’t $150 an hour be better? This argument is intended to demonstrate that raising the minimum wage would cause low-skilled workers to lose their jobs or not be hired at all because they cannot produce $150 worth of product in an hour. (If they did, they wouldn’t be called low-skilled.) But this argument doesn’t address more sophisticated minimum-wage advocates, who would readily concede that a $150 minimum wage would harm working people, and not just those with low skills. These advocates simply want to nudge the minimum up from $7.25 to $15 because something unjustifiably keeps the wage from rising. What harm could that do?
Unfortunately, they never explain what keeps the wage at $7.25 if the appropriate wage -- how do they know this? -- is $15. Even though the U.S. economy can’t be described as a free market (more below), fast-food franchisees seem competitive enough among themselves (and against other employers) to push the wage up. Why haven’t they done so? I see no sign that McDonald’s and Burger King franchisees conspire to keep the wage low. And if they do, why wouldn’t Wendy’s swoop in and cut its worker-turnover costs by moving its wage toward $15? Someone needs to explain that. Instead, economist Arindrajit Dube lamely argues that if the minimum wage were raised, McDonald’s employees wouldn’t take other jobs, leaving those jobs for the unemployed. But if the wage does not rise and McDonald’s employees do take better jobs, couldn’t the unemployed take their old jobs? This guy’s got a Ph.D. from the University of Chicago!
Apparently $7.25 is the market rate for much low-skilled labor. But the market is not free. By that I mean the U.S. economy is riddled with deep institutional barriers to advancement for many people, beginning with the government’s own schools, which for low-income people are notoriously bad; they handicap kids for life. Then there are the myriad barriers to self-employment and neighborhood enterprises: occupational licensing; land-use rules like zoning; regulations and taxes, which increase the cost of starting and running a business; intellectual property, which threatens imitators with lawsuits; and more.
To raise wages for low-skilled people we must eliminate these barriers, forcing bosses to face tougher competition for workers.
Power to the individual, not to the state!