Minimum Wages
By Darren Brady Nelson
President Harry S. Truman perhaps made the ultimate economist joke when he famously said:“Give me a one-handed economist! All my economists say, On the one hand on the other.”i Not all economists will agree on everything. Nor will all people of any profession do so. However, there is more agreement amongst economists on the most likely impacts of minimum wages than for most policy areas.
Highly respected mainstream economist Jack Hirshleifer,ii and political centrist, in the final edition before his death of his widely-used textbook of Price Theory and Applications,iii wrote:
“When a minimum wage is set higher than the market equilibrium wage, therefore, the competitive-market model would clearly predict some disemployment of those previously working and an even larger amount of unemployment – since at the higher wage more workers will be seeking employment.”
“The absence of differentials in the United States leads us to expect that the brunt of the disemployment effects, if any, will be suffered by low-wage areas such as Appalachia and by low-wage demographic groups such as ‘minorities’ and youthful workers.”
Legendary Austrian school economist, and libertarian anarchist, Murray N. Rothbard,iv in his under-rated treatise of Man, Economy, and State,v corroborates Hirshleifer’s first point:
“When a minimum wage law is effective, i.e., where it imposes a wage above the market value of a grade of labor (above the laborer’s discounted marginal value product), the supply of labor services exceeds the demand, and the ‘unsold surplus’ of labor services means involuntary mass unemployment.”
Nobel laureate winning Chicago school economist, and libertarian minarchist, Milton Friedman,vi in his best-seller book of Free To Choose,vii corroborates Hirshleifer’s second point:
“The minimum wage law requires employers to discriminate against persons with low skills. No one describes it that way, but that is in fact what it is.”
“The high rate of unemployment among teenagers, and especially black teenagers, is both a scandal and a serious source of social unrest. Yet it is largely a result of minimum wage laws.”
In conclusion, “if you raise the cost of doing something (such as hiring workers), you get less of it.”viii That is not only inefficient and anti-liberty, but also impoverishing and inequitable. Ideas have consequences.ix Government-imposed minimum wages are a perennial bad idea, with equally perennial bad consequences. Intentionally or not, they harm more than they help.
Endnotes and author’s bio follow on the next page.
Darren Brady Nelson is an independent economist and think-tanker who works in the USA, Australia, and around the world. He is an expert in fiscal, monetary, and regulatory policies, as well as Austrian, Chicago, and Christian economics. He aims, as Aussie maverick politician Don Chipp once did, to “keep the bastards honest.”
iii https://www.cambridge.org/et/universitypress/subjects/economics/microeconomics/price-theory-and-applications-decisions-markets-and-information-7th-edition
