Epstein dispels minimum-wage myths

In addition to offering a useful reminder of the basics of the supply and demand curves, Richard Epstein‘s latest column for the Hoover Institution’s “Defining Ideas” emphasizes the negative unintended consequences of the government-mandated minimum wage.

[I]t is neither here nor there that the real value of the minimum wage peaked in 1968 and has declined since that time. If the minimum wage law is a structural mistake, then 1968 represents the low point in the cycle, not the high point. Indeed, it is worth noting that the most rapid decline in the real value of the minimum wage took place during the Reagan years, when labor markets continued to gain strength. The relevant baseline is not historic demands of the minimum wage law; it is what workers earn. We have very low labor market participation today. If an increased minimum wage will make it harder for low-skills persons, minorities, and teenagers to gain a toehold in the labor market, why support it?

Nor is the case for a higher minimum wage advanced by insisting, as the White House does, that “paying workers more can also improve motivation, morale, focus, and health, all of which can make workers more productive.” Indeed, these considerations cut exactly the opposite way. If increased wages alone increased productivity, there would be no need for federal intervention: Employers would have all the incentive they need to raise wages voluntarily. That is how markets work.

In fact, if the incentive is as the White House says, then federal intervention could upset the delicate internal balance of any firm, lowering morale by prompting employers to respond with cuts in hours and changes in shifts and working conditions. The best that can be hoped for is that a hike in the minimum wage will not be too harmful. It is highly unlikely that it can be a source for good.

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