Blackadder’s Lair

The home of many a cunning plan

The Minimum Wage is Always Zero

Yesterday the federal minimum wage was raised from $5.85 an hour to $6.55 an hour. Perhaps you didn’t notice. Minimum wage laws are a strange sort of thing. They’re quite popular, yet the arguments used to support them are often of the sort that, in other contexts, hardly anyone would find persuasive.

Suppose I were to argue as follows: Homeless is an injustice and a tragedy, and no one should have to beg on the streets for food or money, or to sleep on the streets. Therefore, we should make begging and vagrancy illegal.

Presumably few people would find such an argument convincing. They would recognize that, bad as it is to have to beg for money in order to be able to eat, simply taking away your ability to beg while doing nothing about the circumstances that led you to beg in the first place isn’t going to make you any better off.

Or suppose that, instead of a ban on begging, I propose a law whereby anyone who wants to give money to a homeless person has to give at least $10. That way the amount of money a homeless person will be able to collect from begging will increase, and he or she will soon have enough money to get off the streets. Again, I doubt that many people would find such an argument convincing. They would immediately see that while some people might give more money to the homeless under the new law most people, if forced to choose between giving at least $10 and giving nothing, would choose to give nothing. Nor, I might add, would I be able to win many people over to my proposals by talking about how rotten it is to be homeless. The worse homelessness is, the worse my ideas are.

Yet when it comes to so-called minimum wage laws, i.e. laws making it illegal to hire someone for less than a set amount, many people do fall for precisely these sorts of arguments. It is assumed that if the minimum wage is set at $10 an hour, everyone who would have made less than this absent the law will now make $10 an hour. What people seem to forget, however, is that the minimum wage is always zero. There is no law that says an employer must hire anyone or continue to employ them. If a worker is worth $7 an hour to an employer, and the law says he must pay him $10 or nothing, then the worker will be paid nothing. The law has improved his situation, but made it worse.

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July 25, 2008 - Posted by | Economics, Law, Poverty

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