The Minimum Wage: Do You Prefer Locke or Rousseau?

Here’s one that might surprise you, as it might strike my loyal and devoted followers as heretical:  an argument in support (if not entirely in favor) of an increase in the minimum wage.  In that regard, I assure you that it is entirely a coincidence that this posting occurs shortly after Gov. Romney has mortally offended many of the purists in his party by also coming out in favor of such an increase.  (As it happens, I sent this letter to the editors of The Wall Street Journal in January, 2007.)   If you read carefully, you might detect traces of an allusion to a certain ‘social contract.’

 

Professor Becker and Judge Posner have written a scholarly article (“How to Make the Poor Poorer,” page A11, Jan. 26  edition of the WSJ) in which they decry the movement to enact an increase in the federal minimum wage and attribute the popularity of the idea to “interest-group politics” (as though there were another kind) and to the fact that the “public” (unlike the professor and the judge) is ignorant of economics.  Let me suggest another reason, one that seems not to have occurred to them and that is not based upon the premise that the public is ignorant.

Few serious economists would argue the writers’ fundamental premise, which is that an increase in the minimum wage results in a net reduction in employment.  (Some might argue that it takes quite a bit more than $5.15 per hour to motivate certain persons to even bother to seek employment, which may be why U.S. employers regularly complain that it is extremely difficult to fill low-end jobs with domestic labor, but it may be impossible to substantiate that proposition.)  The problem is, Messrs. Becker and Posner do not seem to have considered the possibility that a direct improvement in the aggregate wages of the poor is not necessarily the only relevant objective of the proponents of the increase in the minimum wage.

The public is not stupid.  It absorbs the data that indicate how strong the overall economy is, how low the rate of unemployment, how low the rate of inflation, and so on.  Yet it also is keenly aware of what Home Depot paid its CEO to do the company the favor of resigning, what the top 50 partners at Goldman Sachs were paid last year, what people are earning for running hedge funds, and how much the average Fortune 500 CEO earns as a multiple of what the company’s factory workers make.  The public is aware of the energy invested by corporate America (not to mention your own Holman Jenkins) in explaining why there is nothing wrong with a corporation’s lying to its shareholders and the markets about the way in which it prices the stock options that it grants to its executives.  The American public looks at all of this and, apparently, comes to the conclusion that there is a certain lack of grace, humility, and fairness in a system that begrudges an increase of $2.10 per hour to its poorest workers, and that there is a certain amount of hubris in the efforts of those, such as the professor and the judge, who would seek to explain this to the poor by telling them that the denial of the increase is, actually, good for them.

One may share Mr. Becker’s and Mr. Posner’s enthusiasm for free markets without forfeiting the perspective that the success of such markets depends, to a significant extent, upon the willingness of the general public to trust them.  Show me a country where the perceived gap between the rich and the poor is too great, and you may be looking at another Venezuela.  If you don’t believe that could happen in America, take a look at where we appear to be headed with regard to our health system as a result of Mr. Bush’s failure to address the problem seriously until he had lost his majority in Congress.

[Posted @ mecmoss.com on 12 Feb 2012]

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