Outlawing Jobs

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There
is no clearer demonstration of the essential identity of the two
political parties than their position on the minimum wage. The Democrats
proposed to raise the legal minimum wage from $3.35 an hour, to
which it had been raised by the Reagan administration during its
allegedly free-market salad days in 1981. The Republican counter
was to allow a "subminimum" wage for teenagers, who, as
marginal workers, are the ones who are indeed hardest hit by any
legal minimum.

This stand
was quickly modified by the Republicans in Congress, who proceeded
to argue for a teenage subminimum that would last only a piddling
90 days, after which the rate would rise to the higher Democratic
minimum (of $4.55 an hour.) It was left, ironically enough, for
Senator Edward Kennedy to point out the ludicrous economic effect
of this proposal: to induce employers to hire teenagers and then
fire them after 89 days, to rehire others the day after.

Finally, and
characteristically, George Bush got the Republicans out of this
hole by throwing in the towel altogether, and plumping for a Democratic
plan, period. We were left with the Democrats forthrightly proposing
a big increase in the minimum wage, and the Republicans, after a
series of illogical waffles, finally going along with the program.

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.

It is conventional
among economists to be polite, to assume that economic fallacy is
solely the result of intellectual error. But there are times when
decorousness is seriously misleading, or, as Oscar Wilde once wrote,
"when speaking one’s mind becomes more than a duty; it becomes
a positive pleasure." For if proponents of the higher minimum
wage were simply wrongheaded people of good will, they would not
stop at $3 or $4 an hour, but indeed would pursue their dimwit logic
into the stratosphere.

The fact is
that they have always been shrewd enough to stop their minimum wage
demands at the point where only marginal workers are affected, and
where there is no danger of disemploying, for example, white adult
male workers with union seniority. When we see that the most ardent
advocates of the minimum wage law have been the AFL-CIO, and that
the concrete effect of the minimum wage laws has been to cripple
the low-wage competition of the marginal workers as against higher-wage
workers with union seniority, the true motivation of the agitation
for the minimum wage becomes apparent.

This is only
one of a large number of cases where a seemingly purblind persistence
in economic fallacy only serves as a mask for special privilege
at the expense of those who are supposedly to be "helped."

In the current
agitation, inflation – supposedly brought to a halt by the Reagan
administration – has eroded the impact of the last minimum wage hike
in 1981, reducing the real impact of the minimum wage by 23%. Partially
as a result, the unemployment rate has fallen from 11% in 1982 to
under six percent in 1988. Possibly chagrined by this drop, the
AFL-CIO and its allies are pushing to rectify this condition, and
to boost the minimum wage rate by 34%.

Once in a while,
AFL-CIO economists and other knowledgeable liberals will drop their
mask of economic fallacy and candidly admit that their actions will
cause unemployment; they then proceed to justify themselves by claiming
that it is more "dignified" for a worker to be on welfare
than to work at a low wage. This of course, is the doctrine of many
people on welfare themselves. It is truly a strange concept of "dignity"
that has been fostered by the interlocking minimum wage-welfare
system.

Unfortunately,
this system does not give those numerous workers who still prefer
to be producers rather than parasites the privilege of making their
own free choice.

This is
Chapter 34 in Rothbard’s Making
Economic Sense
.

Murray
N. Rothbard
(1926–1995) was the author of Man,
Economy, and State
, Conceived
in Liberty
, What
Has Government Done to Our Money
, For
a New Liberty
, The
Case Against the Fed
, and many
other books and articles
. He was
also the editor – with Lew Rockwell – of The
Rothbard-Rockwell Report
.

Murray
Rothbard Archives

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