This piece shows that Steven Landsburg needs a better armchair. He writes concerning an increase in the minimum wage: “Sure, you’ve lost your job. But don’t forget, this was a minimum-wage job in the first place.”
I’d flunk any Auburn sophomore who wrote this on an exam. Does Landsburg’s statement generalize into a dismissive attitute toward all the supposed harm done by price floors and price ceilings? Your being retained or released may be a marginal matter to the employer, but it may be an all-or-nothing matter to you.
He then writes: “In fact, the power of the minimum wage to kill jobs has been greatly overestimated. Nowadays, most labor economists will tell you that that minimum wages have at most a tiny impact on employment.”
It may have a small impact on total employment, but only because primarily minimum wage legislation redistributes employment–from the (would-be) working poor to the entry-level worker in a middle-income household and from the unskilled to the skilled. Ditch diggers lose their jobs. Trenchers with union operators get more jobs. The “tiny” effect is the net effect. But, of course, to focus on this net effect is to miss the perversity of the legislation.
One more point: Measured unemployment captures so-called “frictional unemployment” and not much else. To be counted as unemployed, you have to be actively looking for a job. People who are excluded from the labor force by the minimum wage do not continue to look. They may be unskilled, but they’re not stupid. Those jobs are gone. Many don’t even show up in the “discouraged worker” category that the BLS routinely reports. They’re just not a part of the labor force.
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Time for Landsburg to take an economics class. He says, “In fact, the minimum wage is very good for unskilled workers. It transfers income to them. And therein lies the right argument against the minimum wage.”
In FACT? No, in FACT, the minimum wage is terrible for unskilled workers. It doesn’t transfer income TO them, it transfers income FROM them, and into the pockets of the guy who is just a little more skilled than they are. Let’s say you have a company with 10 workers, and the employer has an income stream that allows him to pay them certain amounts. The least skilled worker makes the least, $2/hour. He is willing to work for that much money, because he knows he is unskilled….but then, the job also acts as a training course for him. Over time, he will get more skilled, and make more money. But let’s say the government determines that the employer must pay his employees a minimum wage of $4/hour. If this unskilled worker is not worth $4/hour to the employer, then why would he even dream of keeping him around? Perhaps, yes, the customers lose, because prices go up. But then, it’s their choice, whether the product/service is worth that price, so they don’t REALLY lose. No, in all likelihood, that unskilled worker loses. He is fired, and that $2/hr that he was making is used to pay the wages of the other guys that had been making $3/hour, but now must be paid $4.
Landsburg highly undervalues, even ignores, the tangible value of a job as not only a source of income, but as a training course. Unskilled workers, in exchange for their services, are paid with money AND job experience. And that’s something that nobody, especially our politicians, seem to understand.
I was amazed when I read that sentence by Landsburg as well. His next sentence is “Losing a lousy job might not be a whole lot worse than keeping it.”
I guess people are too dumb to realize that they’re better off not working.
There is, potentially, a sinister element of truth to Landsburg’s claim: after private sector unemployment rises as a result of minimum wage legislation or increases, government has more political leverage to step in as an employer of last resort — and government, of course, can afford to pay much more than minimum wage to unskilled workers.
Were this his fully conscious intent, Landsburg’s advice to the unskilled could be crudely stated as “Quit your private sector job, start agitating, and then later take a government job.” I daresay that’s been a successful prescription for many.
(Isn’t this a major reason why there has been little correlation between increases in the minimum wage and increases in total unemployment?)
Thornton has an interesting take on the minimum wage: “Elites in both parties love new government revenue, but they prefer to get it inconspicuously. If a tax increase can be passed off as a wage increase–and create the impression that government has done workers a favor–it’s a winner all around. Call it a revenue raiser. Call it a sop to unions. Call it an election-year tactic to get votes. But don’t call it a help to the poor who are fired or never hired, or whose higher earnings are taxed away, never to be seen again.”
People who are excluded from the labor force by the minimum wage do not continue to look. They may be unskilled, but they’re not stupid. Those jobs are gone. Many don’t even show up in the “discouraged worker” category that the BLS routinely reports.
They might report themselves as looking for work when they’re not in order to evade detection of not fulfilling their obligations to receive unemployment benefits. I’m aware that BLS was supposed to correct this sort of thing (see here(Link)), but it’s not clear that the misreporting was completely eliminated.
From the article:
“Ordinarily, when we decide to transfer income to some group or another—whether it be the working poor, the unemployed, the victims of a flood, or the stockholders of American Airlines—we pay for the transfer out of general tax revenue. That has two advantages: It spreads the burden across all taxpayers, and it makes politicians accountable for their actions. It’s easy to look up exactly how much the government gave American, and it’s easy to look up exactly which senators voted for it.”
Say what now?! First of all, I would like to know who “we” is. “We” is certainly not the American people, because “we” are not the government. The notion that “we” are the government has already been shown to be outright false by Murray Rothbard in “Anatomy of the State.”
Second of all, transferring income through government has NO advantages. In fact, this thievery is truly pernicious because those who receive the transfer don’t know who they are hurting. To them it is just “from the government”, an entity perceived by many to be faceless and super-rich. It would actually be better for those receiving these transfers to have to phisically assault and loot those who fund them. This way the looters would actually have to look the victims in the eye and witness the impact of their robbery.
The biggest problem with Landsburg is that he fails to mention the fact that by allowing inflation to erode the real value of the minimum wage, the U.S. government has allowed the creation of myriad jobs. Failing to increase the minimum wage to any significant degree over the past decade or so is probably the best economic policy initiative of the U.S. government in decades. Where I live, unskilled laborer jobs on construction sites pay $8-10 per hour, considerably above the minimum wage. Even many of the fast food places pay above minimum wage for entry level workers. The market has rendered the minimum wage in this region largely irrelevant, so no wonder these “statistical studies” don’t show a big impact. So what?
The Wall Street Journal printed one- or two-sentence blurs on the minimum wage by Nobel Laureats several years ago, the best of which was by James Buchanan, who said anyone who says it increases employment disavows the law of demand and is therefore unqualified to speak as an economist.
The thing that impressed me most when I read Alcott’s “Little Women” was the author’s almost unremittant griping about the poverty of her family (of a mother and four grown daughters)and about the fact that they were only able to employ one servant(!) This book and other ones have left me with the impression that FAMILIES used very, very often to provide employment in days of yore. To be sure, those jobs that families provided were not very desirable jobs. But the question to be asked is: Where did they go? Where are they now? If anyone says that minimum wages have not caused any employers to stop employing and have never obliterated any jobs, I have to ask about those jobs that FAMILIES used to offer. How can we know minimum wage law is not to be implicated in the disappearance of the jobs families provided?
(Well, of course, Busch and Clinton and other presidents and high-ranking politicians still employ household servants, but I am asking about the servants’ positions of the more ordinary families such as the one in “Little Women”).
Also, in Landsburg’s article, how do we know that his hypothetical employer, upon being confronted with the 50-cent hike in minimum wage (Landburg says it is a form of tax), does not simply eliminate one or more jobs? This is one option which the employer has, and I think it is the first one he would think of. Anyone hiring a large number of persons at minimum wage tends to be already adjusted to high turnover. It will not upset his business much to get rid of someone. There probably is someone just about to quit, anyway, at any point in time. –And if there is not, better still. The employer can choose someone who costs him just as much as any of the others, but who adds to his bottom line least of all of the many, and he can discharge that person!
–So, I would say this 50-cent hike in minimum wage is NOT like a tax on the employer. It is NOT like a tax because the employer can choose not to pay it. (And doing so may improve the efficiency of his business. He may now get a little bit less total work done but may pay HUGELY less money).
On the other hand, the 50-cent hike IS a government penalty imposed upon the almost-certainly desperate person who loses his job as a result of it.
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