2013-02-22

Minimum Wage: Facts Versus Ethics

This morning, over at Cafe Hayek, Donald Boudreaux points to a Wall Street Journal editorial on minimum wage versus unpaid internships for members of Congress.

Boudreaux writes about
...the hypocrisy of politicians who, in one breath, boast of the great benefits that their offices’ unpaid internships offer to young men and women, and who then, in their next breath, pontificate self-righteously about how their support for a higher legislated minimum-wage is evidence of their special concern and care for low-skilled workers.
He then continues:
How gratifying that Ms. Waters is among those who “feel better” about themselves for forcibly shrinking the range of employment options open to low-paid workers.  It’s public-policy as puerile theater-therapy for the ego-greedy elite.
Meanwhile, Dwight Lee's WSJ editorial makes similar points:
Internships at the White House, on Capitol Hill and elsewhere in Washington introduce thousands of young people to working in government and to the discipline and industry needed to function in any workplace. Yet these unpaid positions are almost by definition reserved for the offspring of the well-to-do who are least in need of such an advantage.
And later:
Increasing the minimum wage would make this path to a better financial future harder than it needs to be for the young people who already face the most difficulty. These are the young who don't have the advantages of a stable family life, parental role models at home, and teachers in good private or public schools instilling in them the joy of learning.
These young people don't have the financial security to go to a university right out of high school and then continue on for a professional degree. And they can't afford to take unpaid internships, whether in Washington or with nonprofit organizations.
For these young people, the first jobs they find are seldom those in which they start out being productive enough to be worth even the current minimum wage of $7.25. The teenage unemployment rate reported in January was 23.4%, according to the Bureau of Labor Statistics. One wonders how much higher it has to go before Washington wakes up.
As we can see, these statements are emotionally charged appeals to our greater sense of morality. In the same sense as I have been frequently discussing here on my own blog (here and here), there is an inherent collectivism about these sorts of emotional appeals. They are intended to demonstrate that there are significant moral problems with raising the minimum wage, and that doing so will result in powerful negative consequences on the more vulnerable members of "our" society. By implication, "our" society is made better when "everyone" is allowed to find a job.

But, of course, this is not so very different than the equally collectivist claims made by minimum wage advocates. For that group, we may simply replace the phrase "find a job" with "draw a living wage." In any case, they are appealing to our collectivist desires to ensure that everyone in "our" society is adequately provided for.

Perhaps libertarian economists like Boudreaux (I will not speak to Lee's ideology because I am not aware of it) are so inclined to make the ethical case for the abolition of minimum wage laws precisely because their political opposites are making the same kind of claims in favor of minimum wage. Perhaps the intention is to highlight that morality need not always favor socialism or the state. Perhaps the idea is to demonstrate that the socialists do not have a monopoly on ethics.

If so, such exposition is unlikely to win over new converts. The reason for this is that those who favor higher minimum wages view the world unlike economists. Economists see the world as an array of competing resource allocation schemes. Scarcity exists, therefore nobody can have all that they want, therefore schemes that maximize resource allocation and minimize deadweight loss are preferable.

Unlike the economists, socialists view resource allocation through a lens of competing class interests. They believe that the only reason the poor do not draw higher wages is because the rich people are taking a larger share for themselves. They also believe that the reason many people are unemployed is because the rich refuses to hire them. (The argument is that hiring more workers who must be paid "fairly" cuts into the profits [notably, not revenue] of the rich.)

As such, Boudreaux's remarks miss the mark. Luckily, Mr. Lee's editorial has another side to it, which we would not know about, were we to rely solely on the excerpts provided by Boudreaux. Lee also makes the existential case in favor of lower-than-minimum-wage work (emphasis added):
The president and other champions of a higher minimum wage clearly recognize the value of entry-level work. Washington interns do much of the phone-answering and mail-processing chores that await first-time jobholders in offices across the land. An entry-level job is much more important for many young people than making a little summer money. It is the best opportunity they have for getting the training to develop skills they need to earn a good income later in life when they will have more financial obligations.
As Lee rightly points out, there are clear, non-monetary benefits to working an unpaid internship with the US federal government. With regard to internships, almost no one disagrees. The "hypocrisy" of the minimum-wage advocates is not that they cruelly wish to deprive the poor of work, but rather that they themselves understand full well that some work confers important benefits beyond the mere monetary value of it.

This fact is impressively encapsulated by the "server's wage" earned by waitstaff, which is much lower than the minimum wage. Servers earn this lower wage because everyone understands that being a waiter or waitress comes with the important non-wage benefit of exposure to gratuity. A server can earn much more than minimum wage - much more than even some well-paying non-service-industry jobs - solely by virtue of the fact that they have access to gratiuties.

The existential case against minimum wage is the simple fact that not all job compensation is monetary in nature. Sometimes having the flexibility of working, say, a 10-hour work week is more important than earning another $2 per hour. Under a minimum wage regime, many such employment opportunities are lost because 10 hours per week at minimum wage is too costly for the employer to justify, but 10 hours per week at a slightly lower wage might in fact make a lot of sense.

So flexibility, access to gratuity, access to high-profile experience, and so on, constitute important non-wage benefits that can be had in a world without minimum wage legislation. To a lesser extent, these opportunities still exist. The existential reason to abolish minimum wage, however, is that opening up the job market to more such opportunities would confer important economic benefits on low-skill, or low-wage, or even just entry-level employees.