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The Sin of Wages?

July 12, 2004

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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