• Outlawing Jobs

    Email Print
    Share

    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

    Email Print
    Share
  • Political Theatre

  • LRC Blog

    LRC Podcasts