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.”
