One of the big progressive talking points coming out of the President’s recent “State of The Union” address is his proposal of once again raising the Federal minimum wage, this time to $9. The minimum wage is one of many political proposes designed specifically to make anyone that opposes it look greedy and heartless. Why, who can argue that people should be able to make enough money to meet their needs? Why surely $9 is a reasonable amount of money to pay someone, the argument goes, and if you oppose that, well then you just must be a heartless soul who doesn’t understand the plight of the “working man”!
In defense of policies such as these, liberals will often trot out their favorite Nobel Prize Winning Economist, Paul Krugman, so they can point to him and say “Hey, Stupid! This guy won a NOBEL PRIZE! You’re just some libertarian blogger, how you gonna argue with THAT!”. And right on cue, there is a post from Paul Krugman’s blog “Conscience of a Liberal” currently being spread around the social media that deals with the minimum wage issue.
From the top, Krugman takes the wrong approach, attempting to disprove simple logic through empirical studies:
So what should you know? First, as John Schmitt (pdf) documents at length, there just isn’t any evidence that raising the minimum wage near current levels would reduce employment. And this is a really solid result, because there have been a *lot* of studies. We can argue about exactly why the simple Econ 101 story doesn’t seem to work, but it clearly doesn’t — which means that the supposed cost in terms of employment from seeking to raise low-wage workers’ earnings is a myth.
As Bob Wenzel recently explained on his blog Economic Policy Journal, it is fallacious to attempt to use empirical studies to prove or disprove something that is based on irrefutable logic. Wenzel sums it up in his typical hard-hitting no-nonsense fashion:
The simple fact is that if you force people to pay more for something, they will buy less of it.
There are no empirical studies that can refute this. It is pure logic. And no empirical studies are needed to prove the argument. They can’t.
Anyone using empirical data to try and prove or disprove logic is a quack
Not to let Wenzel take away the spotlight from the real star of this weekly feature, here is Murray Rothbard on the minimum wage from his book, Making Economic Sense:
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.
As usual, Rothbard takes statist logic and brings it to its logical conclusion. He also labels it correctly by calling it “outlawing jobs”. The typical statist argument is that minimum wage laws have no effect on employment. But if this is the case, there is no reason to arbitrarily make the minimum wage $7.25 or $9. Why not make it $100 per hour? Then surely every man, woman and child will have a six figure income and the entire country will be prosperous.
Apologists such as Krugman will retort with “well that’s just ridiculous”, and as Rothbard so eloquently points out, of course it is.
There should be no minimum wage; people should be allowed to freely associate and accept compensation at whatever level they are satisfied with. For many this means taking very low paying jobs or internships or even paying someone to be their apprentice and learn a craft. These skills acquired in this low paying jobs are what allow workers to learn and acquire skills and