Government to Low-Skilled Workers: Drop Dead!

Effective today, the US hourly minimum wage changes from $6.55 to $7.25, arbitrarily raising the cost of employing low-skilled workers by 11%. Beating up on the minimum wage is pretty low-hanging fruit for libertarian policy commentary; it’s been done a lot, and it involves rehashing basically the same simple argument. But politicians and the general public stubbornly continue their willful economic ignorance, so it’s important to keep pushing the message, as Steve Chapman does in his commentary from yesterday:

At a time when employers are laying off workers, Washington is going to make it more expensive to keep them. If you’re a minimum wage employee, your job will pay more, but only if it still exists. These days, most companies are scrutinizing every position on the payroll to make sure it’s worth the cost. Raise the toll, and some employees will find they are no longer valuable enough to make the cut.

More sophisticated minimum wage defenders like to point out that in the imperfect markets of the real world, there are exceptions to the simple law of demand argument (price of hiring up, quantity of hiring down) that everybody learns in intro economics. It is true that, at certain times, in certain industries, there are monopsonistic conditions in which employers have more market power than workers. In these specific cases of monopolies, there is both economic theory and empirical evidence indicating that an increase in the minimum wage (within a certain range) could increase efficiency and employment (although there are also public choice reasons to be skeptical about the political process producing policy that sets the minimum wage at the correct level).

But the problem is, there are only very specific instances and specific markets in which a minimum wage is economically justifiable, and our current minimum wage law is broadly applied and national in scope. So, although the law of demand may not necessarily be true always and everywhere, it is still the rule rather than the exception, which means that general minimum wage increases do not make economic sense.

What’s especially frustrating for those of us who really care about helping low-wage workers is that there is a program that does what the minimum wage is supposed to do (increase pay for low-wage jobs) and avoids raising employment barriers for the same group it’s supposed to help: Earned Income Tax Credits, which subsidize low-skilled workers without raising costs for the employer (as Anthony Randazzo pointed out last week, raising the minimum wage actually undermines this program). Rather than pushing for increases in the minimum wage, progressives should be clamoring to increase EITC. If being progressive is about wanting to help the poor, then this should be the progressive position.

The fact that progressive politicians continue to support minimum wage increases shows that as a group, despite their populist rhetoric, they don’t care enough about poverty to take the time to learn which policies actually help the poor and which do not. Instead, they choose to ignore the economic evidence and continue to engage in counterproductive altruistic signaling aimed at the economically illiterate.

Carson Young is an 2009 intern at Reason Foundation.