Making Economic Sense
Making
Economic Sense
by Murray Rothbard
(Contents
by Publication Date)
Chapter 36
Outlawing Jobs: The Minimum Wage, Once More
There is no clearer demonstration of the essential
identity of the two political parties than
their position on the minimum wage. The Democrats proposed to raise the
legal minimum wage
from $3.35 an hour, to which it had been raised by the Reagan
administration during its allegedly
free-market salad days in 1981. The Republican counter was to allow a
"subminimum" wage for
teenagers, who, as marginal workers, are the ones who are indeed
hardest hit by any legal
minimum.
This stand was quickly modified by the Republicans
in Congress, who proceeded to argue
for a teenage subminimum that would last only a piddling 90 days, after
which the rate would
rise to the higher Democratic minimum (of $4.55 an hour.) It was left,
ironically enough, for
Senator Edward Kennedy to point out the ludicrous economic effect of
this proposal: to induce
employers to hire teenagers and then fire them after 89 days, to rehire
others the day after.
Finally, and characteristically, George Bush got
the Republicans out of this hole by
throwing in the towel altogether, and plumping for
a Democratic plan, period. We were
left with the Democrats forthrightly proposing a big increase in the
minimum wage, and the
Republicans, after a series of illogical waffles, finally going along
with the program.
In truth, there is only one way to regard a minimum
wage law: it is compulsory
unemployment, period. The law says: it is illegal, and
therefore criminal, for anyone to hire
anyone else below the level of X dollars an hour. This means, plainly
and simply, that a large
number of free and voluntary wage contracts are now outlawed and hence
that there will be a
large amount of unemployment. Remember that the minimum wage law
provides no jobs; it only
outlaws them; and outlawed jobs are the inevitable result.
All demand curves are falling, and the demand for
hiring labor is no exception. Hence,
laws that prohibit employment at any wage that is relevant to the
market (a minimum wage of 10
cents an hour would have little or no impact) must result in outlawing
employment and hence
causing unemployment.
If the minimum wage is, in short, raised from $3.35
to $4.55 an hour, the consequence is
to disemploy, permanently, those who would have been hired at rates in
between these two rates.
Since the demand curve for any sort of labor (as for any factor of
production) is set by the
perceived marginal productivity of that labor, this means that the
people who will be
disemployed and devastated by this prohibition will be precisely the
"marginal" (lowest wage)
workers, e.g. blacks and teenagers, the very workers whom the advocates
of the minimum wage
are claiming to foster and protect.
The advocates of the minimum wage and its periodic
boosting reply that all this is scare
talk and that minimum wage rates do not and never have caused any
unemployment. The proper
riposte is to raise them one better; all right, if the minimum wage is
such a wonderful
anti-poverty measure, and can have no unemployment-raising effects, why
are you such pikers?
Why you are helping the working poor by such piddling amounts? Why stop
at $4.55 an hour?
Why not $10 an hour? $100? $1,000?
It is obvious that the minimum wage advocates do
not pursue their own logic, because if
they push it to such heights, virtually the entire labor force will be
disemployed. In short, you can
have as
much unemployment as you want, simply by pushing the legally
minimum wage
high enough.
It is conventional among economists to be polite,
to assume that economic fallacy is
solely the result of intellectual error. But there are times when
decorousness is seriously
misleading, or, as Oscar Wilde once wrote, "when speaking one's mind
becomes more than a
duty; it becomes a positive pleasure." For if proponents of the higher
minimum wage were
simply wrongheaded people of good will, they would not stop at $3 or $4
an hour, but indeed
would pursue their dimwit logic into the stratosphere.
The fact is that they have always been shrewd
enough to stop their minimum wage
demands at the point where only marginal workers are affected, and
where there is no danger of
disemploying, for example, white adult male workers with union
seniority. When we see that the
most ardent advocates of the minimum wage law have been the AFL-CIO,
and that the concrete
effect of the minimum wage laws has been to cripple the low-wage
competition of the marginal
workers as against higher-wage workers with union seniority, the true
motivation of the agitation
for the minimum wage becomes apparent.
This is only one of a large number of cases where a
seemingly purblind persistence in
economic fallacy only serves as a mask for special privilege at the
expense of those who are
supposedly to be "helped."
In the current agitation, inflation--supposedly
brought to a halt by the Reagan
administration--has eroded the impact of the last minimum wage hike in
1981, reducing the real
impact of the minimum wage by 23%. Partially as a result, the
unemployment rate has fallen
from 11% in 1982 to under six percent in 1988. Possibly chagrined by
this drop, the AFL-CIO
and its allies are pushing to rectify this condition, and to boost the
minimum wage rate by 34%.
Once in a while, AFL-CIO economists and other
knowledgeable liberals will drop their
mask of economic fallacy and candidly admit that their actions will
cause unemployment; they
then proceed to justify themselves by claiming that it is more
"dignified" for a worker to be on
welfare than to work at a low wage. This of course, is the doctrine of
many people on welfare
themselves. It is truly
a strange concept of "dignity" that has been fostered by the
interlocking minimum wage-welfare system.
Unfortunately, this system does not give those
numerous workers who still prefer to be
producers rather than parasites the privilege of making their own free
choice.
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