The morality of the minimum wage
Suppose that I invent and use a machine to steal $15,000 every year from each of 500,000 poor Americans, with the $7.5 billion being transferred into my Swiss bank account. After skimming off a few hundred million bucks to cover processing and handling expenses, I share the bulk of these proceeds with about 16.5 million friends. And this machine operates so deviously and secretively that my victims have no idea that I'm taking their money.
Am I acting immorally? Is the $7.5 billion that I pilfer each year stolen property that should be returned to its rightful owners rather than given to my 16.5 million friends?
Most people would answer “yes” to both questions. But some politicians, pundits and even (I'm ashamed to say) economists might answer no.
Of course, when the question is worded as it is above there will be only “yes” answers. If, however, the wording were changed a bit, many people would switch their answers from “yes” to “no.” Here's the changed wording: Suppose that I invent and use minimum-wage legislation that, by casting 500,000 low-skilled workers into the ranks of the unemployed, causes these workers' annual incomes to fall from $15,000 to $0. But the legislation also raises the wages of 16.5 million other workers. In effect, the incomes lost by the now-unemployed workers are transferred to the still-employed workers.
Am I acting immorally to use this legislation? Is the $7.5 billion taken annually from the 500,000 workers who lose their jobs and given to the other workers who keep their jobs stolen property that should be returned to those unemployed workers — returned in the form of opportunities to regain their jobs?
Politicians, pundits and economics professors who've read the Congressional Budget Office's February report on raising the minimum wage to $10.10 per hour, yet who continue to endorse a higher minimum wage, evidently believe that it's morally acceptable to steal $15,000 annually from some poor workers if the proceeds are given to other workers.
The CBO study concludes that raising the federal minimum wage from $7.25 per hour to $10.10 per hour will indeed — as basic economics predicts — reduce employment among low-skilled workers. Specifically, the CBO predicts that this higher minimum wage will destroy about 500,000 jobs. The study also predicts that about 16.5 million other workers will receive higher pay as a result of a higher minimum wage.
“QED!” conclude proponents of raising the minimum wage. “The number of job losses is small compared to the number of people whose wages will rise. Therefore, the minimum wage should be raised!”
Yet anyone who uses this reasoning to approve and applaud a hike in the minimum wage should logically also approve and applaud the use of a machine that arbitrarily robs 500,000 poor people, year in and year out, of $15,000 each and then transfers much of the booty to other people.
Reasonable people can dispute the CBO's specific predictions. (I believe, for example, that the method used by that agency to calculate the number of jobs destroyed by raising the minimum wage leads to an underestimation of job losses.) No matter. Anyone who supports artificially raising the wages of some workers through a policy that causes other workers to remain unemployed is someone who believes that it is moral for government to arbitrarily impoverish some people in order to raise the incomes of others.
Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. His column appears twice monthly.