Evidence that Labor Markets are Competitive

(Don Boudreaux)

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Here’s a follow-up note to an aspiring econ grad student:

Mr. A___:

Thanks for your follow-up e-mail. You write that Walmart’s recent announcement of hourly wage hikes, to $15, for nearly a half-million of its workers “is evidence that raising low income workers’ pay is good economic policy.” And so, you ask me, why do I “continue to oppose minimum wage increases.”

Do you not see a difference between wages being driven higher by market forces and wages being forced up by legislation? I do. And do you not see that what is good policy for an individual firm or person is not necessarily good policy for other firms or persons – and certainly not necessarily a policy so ‘good’ that it should be imposed by legislative diktat nationwide? I do.

The objection to minimum-wage legislation is not an objection to low-skilled workers earning higher pay. It’s an objection to the government stripping low-skilled workers of the right to offer to work at wages below the government-stipulated minimum as a means of making themselves sufficiently attractive to employers. The objection to minimum-wage legislation is an objection to overriding the nuanced, voluntary determination of wages on competitive markets with the heavy-handed, mandatory imposition of wages through coercive politics.

Wal-Mart’s decision to raise its employees’ wages is Exhibit A against minimum wages. This decision shows that markets work. Walmart is raising these wages not because executives in Bentonville have become more philanthropic but because markets – including labor markets – are competitive. (Note that Amazon and Target have already raised the wages of their workers in comparable jobs.)

So by pointing to Wal-Mart’s decision to raise wages, far from pointing to evidence in support of the case for raising the minimum wage, you point to evidence in support of the case for abolishing it. As I explained in my note to you yesterday, minimum wages imposed even in uncompetitive labor markets are much more likely to harm than to help low-skilled workers. But minimum wages imposed in competitive labor markets will necessarily result in more harm than help to low-skilled workers.

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