What is the case for and against the minimum wage?
The moral case for a $15 minimum wage is simple and straightforward. In the words of Robert Reich, the Harvard professor and former Secretary of Labor: “no one should work full time and still remain in poverty.” For Reich the job loss that might follow is insignificant. Jobs that don’t provide a living wage are not worth having. For him, this is analogous to laws restricting child labor or sweatshop conditions. The economic case for a higher minimum wage wrests on multiple grounds – that on an inflation-adjusted basis the wage is lower than it was fifty years ago, that the increase would reduce economic inequality, that employment could actually rise as a study by Card and Krueger showed occurred in the 1990s, that the increase would boost the economy by boosting demand. The political case for the minimum wage is irrefutable – it is extremely popular among Republicans and Democrats. How can you possibly be against helping the country’s neediest?
The moral case against the minimum wage is first, that it violates the principle of freedom of contract, second that the consequence is apartheid for the least skilled.
The moral case is bolstered by a study of the history of minimum wage in both the United States and South Africa where minimum wage laws had their origin in the attempts by white workers to price relatively low skilled blacks out of the market. It worked. The economic case against the minimum wage is closely related. The first law of economics is “tax it get less of it, subsidize it get more of it.” Raise the price of labor, demand for labor will go down. To raise the minimum wage is to rip the bottom rung from the ladder of opportunity for the youngest and least skilled.Two touchstones are critical in assessing any social policy: the leakage rate and the coverage rate. The leakage rate measures those not in the targeted population who benefit from it. The coverage rate is the percentage of the targeted population that benefit. The minimum wage has a high leakage rate – most people with minimum wage jobs are not poor – was well as a low coverage rate – most poor people do not work at minimum wage jobs. If you care about poor people, target them directly. A means-tested basic income program or an expanded earned income tax credit are social programs that are consistent with reducing want and encouraging work without violating freedom of contract or the basic laws of economics. A carbon tax makes sense because it taxes something that is bad (carbon burning). A minimum wage is bad because it taxes something that is good (job creation).