Wages Etc.

Steven E. Landsburg has an interesting article in Slate that first discredits the Republican myth that the minimum wage is bad for overall employment, and then provides a good argument against minimum wages.

On the first point, the notion that increases in minimum wages (JFKerry, for; G-Dub, against) will hurt employment among minimum wage-earners is based on the seemingly logically sound premise that higher labor costs for minimum-wage employers will force them to cut back on jobs. Studies done in the ballpark of 20 years ago seemed to confirm that. But Landsburg explains why those studies were statistical outliers of the vast majority of available data, and that labor economists now believe that minimum-wages have a minimal impact on overall employment; consequently, an increase in the minimum wage will not kill off many jobs, and those it does affect were pretty crummy jobs. I suspect that the reason the anti-minimum-wage logic doesn't pan out is that minimum-wage employers still have their own requisites for overall labor power, and that the sorts of increases in labor costs resulting from minimum-wage increases are not among the most important factors in the calculus by which an employer determines how many laborers he wants on his payroll. There is going to be a certain number of workers without which his business cannot function, while conversely, a minimum-wage increase is unlikely to be the critical mass in moving an employer to decide to eliminate jobs. The employer would probably have arrived at that latter decision whether or not the minimum wage had been increased.

Moreover, if the minimum wage were to be decreased (or, as has been the case, did not keep up with inflation), such a development would actually create an incentive for minimum-wage employers to cut jobs. Why? Suppose an employer were able to project that cutting X jobs, the (hypothetical) maximum number of jobs that could be cut without a loss in productivity, would save him $Y per year. He might not feel that $Y is enough of a savings to justify such a move (let's say he's got some sympathy for the workers). However, tell him that with an unadjusted minimum wage, he stands to save $Y + the factor of the rate of decrease in wages over a period of years, that might just be enough to get him to start cutting jobs.

Okay, enough with Republican mythology. What does Landsburg have against the minimum wage? Precisely the fact that it's too good for minimum-wage earners. It constitutes a redistribution of wealth toward low-income earners, but unlike other wealth transfers, which are funded through taxes and hence spread out over the entire population, minimum wages literally transfer wealth from low-wage employers and their consumers to minimum-wage earners. It's morally equivalent to imposing a tax on people who hire unskilled labor without bearing any political risks for doing so (I don't think an overt tax proposal along these lines would garner any support), as well as on consumers, whose interests are the very interests that determine electoral outcomes.

As a sidenote, Landsburg's article provides a kind of contrapositive argument against supply-side economics. That too is an ideology of speculative behavioralism masquerading as economics. There is no way to know for sure that tax refunds specifically favoring the wealthy are going to stimulate anything along the lines of job creation, reinvestment in the economy, etc. The supply-side argument postulates that such rebates create an incentive for a "trickle-down" (I'm not using that term pejoratively) effect; yet work in the social sciences indicates that whatever incentive is created is largely outweighed by other tendencies among the upper income brackets, and that the trickle-down effect is therefore minimal. This is not to say that government cannot generate economic growth by, let's call it, re-privatizing some of its tax revenue; rather, it indicates that the wealthy are by no means the ideal segment of the population for targeting tax cuts.