“Chronic unemployment is obviously a political disease that springs from the primitive notion that government can improve everyone’s income and working conditions by legislation and regulation.”
Hans Sennholz tells the truth: Politics Causes Unemployment — and the minimum wage laws are only part of the picture.
“Whenever government forcibly raises employment costs it causes marginal labor, that is, labor that barely covers its costs, to become submarginal. It does not matter whether government orders wage rates to rise or benefits to be improved, the workday to be shortened, overtime pay to be raised, funds to be set aside for sickness and old age, or any other benefit to be granted.”
While this is true, I continue to find that addressing the minimum wage laws specifically is both the appropriate first step, and often the biggest hurdle for “well intentioned” interventionists. Once you can get someone to confront the logic of price controls, the rest becomes easier.
Jim Cox has a short chapter on minimum wage law in his Concise Guide To Economics. But he has also written a longer treatment of the subject. It is available from The Advocates for Self-Government as Minimum Wage, Maximum Damage.
A slightly earlier version of the same treatment is available online as …
Why is this issue so important?
Because someone who can’t grasp the effects of labor price floors won’t be able to deal with any other economic issue.
Below I offer my own thoughts on the reasons we’re still fighting this important battle when price controls are one of the least complex aspects of economic theory.
The 3 ‘E’s of the Minimum Wage
It’s time, once again, to talk about the minimum wage.
Or rather, it’s time to talk about why we’re still talking about it.
Why is this absurd law still with us? Why is it so popular? Why are the Democrats talking about the need to raise the minimum yet again?
From an ethical perspective, the law is wrong. From an economic perspective, it is damaging and dangerous. And yet the emotional perspective—the actual basis of most opinions—has a strangle hold on well-intentioned people.
Let me elaborate the three ‘E’s mentioned above:
E1: Ethical alignment.
This is also known as one’s principled or moral position. This is where we talk about right and wrong in our deepest sense of those words. This is the focus of those who believe that the ends cannot justify the means.
E2: Economic alignment.
This is also known as the practical, utilitarian, or consequentialist perspective. Those who believe that the ends can justify the means would presumably care most about economics, the study of which means affect what ends.
E3: Emotional alignment.
This is the realm of connotation, of symbolic alignment, which “side” you want to be on. Emotional alignment is how people feel about an issue, and perhaps more important, how they feel about the people they associate with the different sides.
To take a position, I believe one needs to address the first two: the ethical and the economic. To persuade someone, I think one needs to address all three. We libertarians often neglect E3. While most people will claim to hold positions based on morality or on consequences, they really base their positions on symbolic- or emotional alignment: agreeing with “the good guys” and not wanting to side with “those people” etc.
E1: The Ethics of the Minimum Wage
When debating the minimum wage law with an advocate, I used to address only E1: the right of contract. I didn’t need to understand the economics of price fixing and the consequences for unskilled labor; all that mattered was the right of individuals to engage in voluntary arrangements without the coercive influence of third parties.
If I own myself, then I own my labor. If I own my labor, then I have a right to exchange it for whatever compensation I agree to, on whatever terms I agree to. That’s my perspective as a worker. My perspective as an employer would be the same: if someone is willing to do work for me at a price I find agreeable, then it’s nobody else’s business to interfere with our exchange. This seems so straight-forward to me now that it takes a real effort to remember how I could ever have believed anything else.
E2: The Economics of the Minimum Wage
As Jim Cox points out in his Concise Guide to the Minimum Wage, the question isn’t whether a person will be employed at an hourly wage of $X or something more than $X; the question is whether the person will be employed at $X or unemployed at $0.
In the past, when talking with a minimum wage advocate who didn’t know any economics, I’d try to sketch out a very quick lesson on how to produce shortages and gluts through price fixing. I eventually realized that I was abstracting too much to hold their attention. (See E3, below.) It has proven more useful to describe concrete examples.
When I was growing up in New York, buildings all over the Upper West Side had doormen. They would welcome tenants and visitors in the lobby, and operate a manually controlled elevator to take them to their floor. At some point in the late 1970s, the doormen went on strike. I learned three things from this strike:
- It’s fun to operate an old-fashioned elevator when you’re a kid;
- To give the doormen what they were asking would have meant that my family’s rent would have to go up;
- It’s cheaper to install intercom systems and new push-button elevators than it is to pay the doormen more.
Everyone seems to understand why there are hardly any manually operated elevators left on the Upper West Side of Manhattan, but they don’t seem to generalize that understanding to labor and the minimum wage.
Similarly, there are many on the economic Left who advocate excise taxes on cigarettes because they know that higher prices will discourage consumption of cigarettes. They want higher gas taxes to lower the consumption of gasoline. So why is it so hard to see that higher work prices will discourage the consumption of labor?
Many people I talk to about the minimum wage seem unaware of any economic downside. The mark of economic illiteracy is the failure to anticipate trade-offs. But some minimum wage advocates do understand the economics of price fixing and do acknowledge that a rising minimum wage means an increase in unemployment. So why do they still support the law? They point to labor statistics, which show that the unemployment effect is mostly on teenagers. They claim that it is worth a rise in the wages of “bread winners” if the only downside is the loss of some part-time and summer jobs for kids. They tend not to mention that these unemployed “kids” are mostly young black men, and that they are the least skilled and least educated among young black men. These are the people most in need of on-the-job training! Minimum wage advocates, mostly white so-called liberals, take for granted the very skills that these young men are now unable to learn on the job: punctuality, responsibility, communication, cooperation, etc. Next time you hear someone decrying the plight of inner city youth, ask how different their futures would be if the bottom rungs hadn’t been removed from the economic ladder.
E3: The Emotional Support of Minimum Wage Law
The most painful part in writing this is that nothing I’m saying is new.
So why is this battle still being fought? Worse yet: why does it seem that we’re losing? Minimum wage is one of the absolute simplest issues to address rationally, and yet the irrational law enjoys overwhelmingly popular support.
Abstract arguments and ethical principles leave people cold. They say that they are “results oriented”—which would seem to imply a belief in the positive economic consequences of price fixing. But when confronted with basic economic theory and history, they remain unconvinced.
Why?
Because to them, minimum wage law feels right. They don’t like thinking of someone working for less than $X per hour. To them, it therefore follows that no one should be allowed to hire a person for less than $X per hour. They don’t see it as a prohibition on labor; they see it as a blow against the oppressive bosses!
They associate the libertarian position not with principle or conviction, but with cold hearts, greed, and selfishness. What we call freedom of contract, they call exploitation. What we call reason, they are convinced is merely rationalization.
This is emotional alignment. Symbolic self-image. People who seem to care about the poor tend to support minimum wage law; therefore someone who wants to support the poor supports the position of that group. It’s as if reality itself could be defined by majority rules.
“I am a progressive, therefore I support progressive legislation.” Or, “The Christian position is X, and I’m a Christian, therefore I support X.”
It’s all based in the belief (habit, reflex) that an issue isn’t about a principle, isn’t about reason, but is always about whose side you’re on. There’s management and there’s labor. The rich and the poor. Exploiters and exploited. Minimum wage law is seen as siding with labor, siding with the poor, the underdog. To oppose minimum wage law is to side with management, to support the rich over the poor.
And of course, the whole context is the damned Class Warfare assumption that Marx managed to plant in the brains of even the most ardent anti-communists. An appreciation of market economics reveals the mutually beneficial nature of trade (as would simple philosophical rigor), but our culture has been indoctrinated with the image of economics-as-warfare. People believe that the rich take wealth from the rest of us, rather than creating wealth for the rest of us. To side with the rich in our dichotomous symbology would be to side with the thief over the victim, and no amount of principled argument—or even practical disproof—will shake that impression out of someone’s head when it’s been lodged in there for so long.
What is to be done?
Should libertarians abandon principles and persuasion in favor of symbolism and emotional manipulation? Perhaps we should focus more on public relations and advertising than on philosophy and economics.
No, there’s nothing wrong with E1 or E2. They are the realms of reason. Abandoning our heads for our hearts leaves us with only arbitrary next steps. But persuasion requires more than reason. It might be less about teaching and more about helping people unlearn certain mental reflexes.
From now on, if I’m going to discuss minimum wage law (or any other regulation, prohibition, or legislation) with a supporter, I’ll say up front that I’m going to address three different perspectives on the same issue, and I’ll introduce them to the 3E approach. There’s not much I can do to change someone’s symbolic alignment or their emotional reflexes, but by making these things an explicit part of the conversation, I can hope to reduce the hold they have on a person’s moral imagination.
{ 16 comments }
I’ve heard it said that “Clinton was the first Black president”, “Clinton was the first Woman president”, etc, specifically because of this “Identity through Ideology” thing.
That’s why Clarence Thomas is called an “Uncle Tom”, because he doesn’t automatically support “Black” positions on issues.
Sure is easier than thinking.
The Concise Guide is broken. Following your link takes one to an index page. Clicking on the links fails because they are absolute rather than relative links and the location has changed. A little fiddling finds this link to the actual chapter 1:
http://www.conciseguidetoeconomics.com/minimumwage/chapter01/
But if you click on the “Introduction” link from that page, that is to say, here…
http://www.conciseguidetoeconomics.com/minimumwage/intro/
…it produces a hacker graphic that says: “Noturnoz crimez ownz your system”.
Ah yes, my old friends, Noturnoz Crimez.
Don’t know how that page slipped through, but the intro is fixed now. As to your other problem, I can’t reproduce it. What browser are you using?
Excellent article and one I’ll pass on. As you stated, many people get caught up in the emotional argument of minimum wage and don’t even tread into the rational part. I used to be one of them – fortunately, I had a friend to educate me in basic economics.
bkMarcus: to repro the other problem, go to this URL, the one you originally linked to, and click any of the links:
http://www.conciseguidetoeconomics.com/minimumwage/
That page is full of broken links, but /this/ URL works fine:
http://www.conciseguidetoeconomics.com/book/minimumwage/
Because employers and employees do not have equal barganing power, there is no fair contract possible between the two (absent a labor union).
Therefore, some government regulation here benefits society as a whole.
See “Do Capitalists Have Superior Bargaining Power?”
by Thomas J. DiLorenzo.
While you’re at it, see also “Markets, Not Unions, Gave us Leisure” and “The Myth of Voluntary Unions” by the same author.
Half, labor is in a much better bargaining position. Skilled labor is very mobile, leaving me, as an employer, in a position where I have to offer good worker more and more to stay on.
As an employer, I’m stuck. I can only beg good workers, they get to pick and choose.
If you can tell me how to be in a “better” position, and myself get to pick and choose between well qualified applicants, I’d love to hear it.
“Because employers and employees do not have equal barganing power, there is no fair contract possible between the two (absent a labor union).”
It’s the “fair” thing again. In the real world is it even possible for everyone to have equal bargaining power all the time? In most transactions one person’s need to sell is more than the other’s need to buy. Or vice versa. If both have equal bargaining power it would result in a stalemate (I think).
“Therefore, some government regulation here benefits society as a whole.”
Does not follow. Govt regulations suppress demand for labour in favour of automation or outsourcing. Of course, to correct that will require more regulations…
Employers and employees don’t have “equal bargaining power” precisely because government regulations exist and interfere with the labor market. And big corps with money to spend on lobbying love it that way, as do the unions with their skilled workers (if you want to be emotional about this). Minimum wage laws are a good example of this. They hurt the young and the unskilled workers, and put smaller companies at a disadvantage. Larger companies are also hurt by minimum wage laws, but they can handle them better than the smaller companies. Thus, governnment regulation protects the big companies from competition for labor, benefiting special interests, not society as a whole.
I posted a somewhat more detailed counterargument over at my blog. (And to whomever runs this Mises blog, your trackbacks don’t seem work.)
Half Sigma:
You seem a well-intentioned (and, from a perfunctory glance at your own site, an intellectually honest) commenter. And, though others have made specific arguments for the non-interventionist, Austrian position in rebuttal, each has been characteristically (though by no means necessarily) only partial in scope (I’d've said “half-assed” but eschewed that hackle-raising choice.).
You’ll do all a favor–but most especially yourself–if you simply go to the source of the most comprehensive and intellectually rigorous treatment of the entire matter of minimum wage laws, indeed, of all interventionist “pro-labor” legislation. That would be Von Mises’ HUMAN ACTION and especially the section devoted to “Work and Wages,” in which virtually every aspect and question which has occurred to you is treated extensively. And, though the passages to which I refer (as well as the rest of that work) require thought and relection on the reader’s part (that is to say, it’s not an “easy read”), I shall venture to bet that you’ll not find anything whatever either unsupportable nor in any way incompatible with the standard of “common sense” extolled on your own site.
You get the same kind of appeal to emotionalism when you complain about child labor laws. Lots of people would probably like to send their children into the mines or to make soccer balls (those little fingers are best for fine stitching), but they can’t even though this would a) make childbearing more economically lucrative and b) build character and a good work ethic in children. Mine operators and soccer ball makers are forced to pay higher wages because of the artificial reduction in the labor pool. We all pay higher costs for these commodities as a result, and quite a few poor families are appreciably worse off because of the inability of their children to earn an income.
But somehow, you can’t get past the emotional hurdle with the proponents of child labor laws.
Sennholz is mistaken; his arguments are only valid for those methods that governments have been willing to try so far. There are other methods they could use that would actually work, e.g. Professor Kim Swales’s method of Pigovian offsets to a broad based tax on producers. Of course, in the long term yet other non-governmental methods would be better, but it is about the best method available here and now (provided the right adjustments were made to prevent capital outflow, which would be institutionally difficult – but even without them it would provide minimum wages AND higher employment, although risking capital flight).
Perhaps I should add, distortions like regulated minimum wages only cause second order or worse declines, so if your personal utility function counts equity or whatever higher than job losses if only there is enough equity gain per job loss, then a sufficiently small distortion will suit you. This doesn’t work if you don’t value them that way, of course.
I just have to say Shawn Ritenour is slightly unintelligent. You know what reasonable means? It means reasonable you moron! I would think that you would realize that along with minimum wage not being to low, neither can it be too high, hence reasonable. How can you possibly have your own website and have people actually agree with you when you make stupid comments like that??
Whether or not Mr. Ritenour is a moron, it is impolite to say so in a public forum. It also violates Mises.org’s blog comment rules:
# If your argument with another poster becomes heated, remember: agree to disagree. Do not resort to personal attacks, and do not belittle someone else’s argument. Instead of making it personal, use reason and persuasive skills to make your point or criticize theirs.
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