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The Sin of Wages?

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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.

Roger W. Garrison received his doctorate degree from the University of Virginia in 1981. He is now Emeritus Professor of Economics at Auburn University in Alabama, where he taught Macroeconomics and History of Economic Thought (among other courses) from 1978 to 2012. He was a Post Doc Fellow at New York University in 1981. He was winner of the Smith Prize in Austrian Economics in 2001 for his book Time and Money: The Macroeconomics of Capital Structure. In 2003 he was named First Hayek Visiting Scholar at the London School of Economics, where he delivered LSE’s First Memorial Hayek Lecture. He served as President of the Society for the Development of Austrian Economics in 2004. His Austrian-oriented writings have appeared in Economic Inquiry, Journal of Macroeconomics, History of Political Economy, Journal of Economic Education, Independent Review, Cato Journal, Journal of Austrian Economics, and in a number of conference volumes and reference volumes. Most recently, his invited chapter titled “Friedman and the Austrians” appears in Robert A. Cord and J. Daniel Hammond, eds., Milton Friedman: Contributions to Economics and Public Policy, Oxford University Press, 2016. 

Roger Garrison is professor emeritus of economics at Auburn University and Associated Scholar of the Mises Institute.

See his web page. Send him mail.

Recent Publications (2012–2016)

Earlier Publications (1979–2012) can be accessed through www.auburn.edu/~garriro.

Garrison, Roger W., “Friedman and the Austrians,” in Robert A. Cord and J, Daniel Hammond, eds., Milton Friedman: Contributions to Economics and Public Policy, Oxford University Press, 2016 (forthcoming).

Garrison, Roger W., “Cycles and Slumps in an Overly Aggregated Theoretical Framework,” in Steven Kates, ed., What’s Wrong with Keynesian Economics, Edward Elgar, Cheltenham, UK, 2016 (forthcoming).

Garrison, Roger W., Review of Randall G. Holcombe, “Advanced Introduction to the Austrian School of Economics, Journal of Economic Literature, 2015 (vol. 53, no. 1): 119-–21.

Garrison, Roger W. and Norman Barry, eds. 2014), Elgar Companion to Hayekian Economics, Edward Elgar, Cheltenham, UK (2014).

Garrison, Roger W., Review Essay: “Alchemy Leveraged: The Federal Reserve and Modern Finance,” Kevin Dowd and Martin Hutchinson’s Alchemists of Loss: How Modern Finance and Government Regulation Crashed the Financial System, The Independent Review, 2012 (vol. 16, no. 3): 435–51.

Garrison, Roger W., “Natural Rates of Interest and Sustainable Growth,” The Cato Journal, 2012 (vol. 32, no. 2): 423–37.

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