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Another Open Letter to Nick Hanauer

Saturday, October 8, 2016 9:25
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(Before It's News)

(Don Boudreaux)

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Mr. Nick Hanauer

Mr. Hanauer:

In your latest brief at PBS News Hour in favor of raising the minimum wage you label as “a scam” the argument that government-imposed hikes in the price of labor cause some jobs to be destroyed (“The claim that if wages go up, jobs will go down is not a theory – it’s a scam,” Oct. 5).

Let’s overlook your mistaken claim that only a “minority” of studies find negative employment effects of minimum wages.  In their 2008 book, Minimum Wages, economists David Neumark and William Wascher find that 2/3rds of studies find such negative effects.  And in the eight years since their book was published many other such findings have been published.*

Let’s overlook also your misunderstanding of the economic prediction that you label “a scam” – a misunderstanding revealed by your glowing reference to a recent paper whose authors claim to find that hikes in minimum wages are seldom followed by reductions in overall employment or by reductions in employment in industries that use disproportionate numbers of low-skilled workers.  These findings, even if they’re beyond dispute, do not contradict the standard economic case against the minimum wage, which is that the minimum wage prices some low-skilled workers out of jobs.  In other words, contrary to your and these authors’ assertion, the principal argument against the minimum wage is not that it reduces overall employment or even employment in certain industries; rather, it’s that the minimum wage artificially prices some low-skilled individuals out of jobs.  No economist denies that raising the minimum wage might result in no detectable reduction in overall, or industry, employment.  The reason is that higher minimum wages have long been understood to attract into the workforce retirees, housewives, college students and other people who would otherwise choose not to work or to work fewer hours.  Indeed, part of the argument against the minimum wage is that it artificially encourages firms to substitute more-productive workers such as these for workers with the fewest skills.

And let’s overlook your disingenuous assertion that opponents of the minimum wage are “doomsayers” who “predict economic Armageddon if the minimum wage was increased.”  The vast majority of minimum-wage hikes in the U.S. have been so modest that (as the highly contested empirical literature attests) the effects of these hikes are very difficult to detect in the data.  Far from ever predicting “economic Armageddon,” economic opponents of the minimum wage – who recognize that fewer than five percent of American workers are so poorly skilled that they earn as little as the minimum wage – predict only that it will destroy jobs for some number of this very small subset of workers.

Instead, I’ve a question for you, given your support for nearly quadrupling the minimum wage to $28 per hour.  Suppose that the state quadruples firms’ costs of employing low-skilled workers not by following your advice to hike the minimum wage to $28 per hour but, instead, by ordering employers to destroy 3/4ths of the output produced by their low-skilled workers but only of that output produced by their low-skilled workers.  Would you classify as “a scam” a prediction that this policy will lead to some low-skilled workers losing their jobs?  If not – that is, if you recognize that firms will respond to this mandate by reducing their employment of low-skilled workers – what reason have you to believe that an equivalent forced hike in firms’ costs of employing low-skilled workers (namely, an increase in the minimum wage) would have no equivalent negative impact on these workers’ employment prospects?

And if you would classify such a prediction as “a scam,” well, then, I confess that I cannot begin to comprehend how anyone can possibly be so bereft as you are of the most basic understanding both of economics and of reality.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* See, for example, this 2016 paper by economist Jeffrey Clemens, and this 2013 paper by Jonathan Meer and Jeremy West.

……

I remind readers of Adam Ozimek’s brilliant assessment of Mr. Hanauer’s complete failure to understand the economics of the minimum wage.

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