I have been having a conversation-debate with a friend of mine, E, on the minimum wage law. I asserted that the higher the wage, the fewer the workers who would be employed. If it is higher than the productivity of a given worker, he will be unemployed, at least in equilibrium. For example, if someone’s productivity is $10/hour, and the law requires he must be paid $15/hour, the employer will lose $5/hour, and will either not hire him, or tend to go broke, if he makes a pattern of this. Here is E’s response to me (I very slightly edited it):
To: Walter Block
Subject: Re: please read
I’ve written what I think are clear disproofs to what you have sent me before. I recently demonstrated that a solution, according to your logic about the institution of the minimum wage in 1935 really should have concluded that in your view the problem was that black people got education.
Here’s a favorite story of mine. There was a liquor company whose bourbon was decreasing in sales. The CEO and CFO got together with marketing. It was proposed to lower the price considerably so as to bring back sales. Marketing suggested a different strategy. Keep the same liquor, but double the price. They tried that strategy, and very quickly sales were higher than ever. AS USUAL your kind of economics forgets a small detail: human beings. E
Dear E: In equilibrium, if you double the price, you sell less, not more, other things equal. Other things were not equal in this case. Of course, we are never in equilibrium in the real world, but we are always tending in that direction.
When greens want people to stop using plastic bags, do they try to raise the price of them, through taxes, or lower the price of plastic bags, thru subsidies. Obviously, the former.
When do-gooders want people to stop smoking, do they try to raise the price of them, through taxes, or lower the price of cigarettes, thru subsidies. Obviously, the former.
Does this give you pause for thought?
Yes, the phenomenon you refer to does exist. You double the price and people think the product has higher quality. But here, other things are not equal. Namely, people’s assessment of the product. This very rarely works with luxury goods. Never, with things like apples, wheat, or, labor. But even on the occasions that it does work, the law of demand is still inviolate: it states that the higher the price OTHER THINGS EQUAL, the less will be purchased. Economists even have a word for this; it’s in Latin, to show how highly educated we are: ceteris paribus. I think that’s Latin, but I’m not sure. I’m not that highly educated.
Yes, it would be good, ceteris paribus if all people, blacks certainly included, had more education, job skills, etc. If they did, then at any given minimum wage level, they might not become unemployed. Say, their productivity increased from $10 to $16. Then, at a $15 minimum wage, they wouldn’t be unemployed. But, if this level was raised again, say, to $25/hour, then they would become unemployed. Hey, at a minimum wage level of $1/hour, very few people would be unemployed. Only, probably, the severely mentally handicapped, who education would not benefit all that much. Certainly, would not likely boost their productivity to $10 or $15/ hour.
Walter2:44 am on February 24, 2019 Email Walter E. Block