Bryan Caplan  

The Symbolic Value of Abolishing the Minimum Wage

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Economists who support the minimum wage realize that it is - at best - a small transfer. Why do they keep focusing on it? A common answer: The minimum wage has symbolic value. Here are two of Klein's respondents:

A low cost demonstration of concern for low wage workers that causes little damage. Elicits a buy-in by low wage workers to the polity...

Creating a culture where people realize that some basic needs of people should be satisfied.

I think these guys are right: The minimum wage is an important symbolic issue. But getting rid of the minimum wage would send a far more valuable message than raising it. By abolishing the minimum wage, we would be making a powerful statement that:

  • Labor markets, like other markets, are governed by supply and demand.

  • The path to prosperity is economic growth, not regulation or worker activism.

  • Regulations intended to help group X typically have negative unintended consequences for group X.

  • European labor market regulation has been a disaster for workers, and we want to avoid anything that remotely resembles it.

    Last but not least, abolition sends the message to:

  • Stop scapegoating employers for your problems and disappointments. If you want to make more money, figure out a way to become more productive.

    Now, I'm more than willing to let anyone with a pulse take my undergraduate Labor Economics class, where I hammer these points into my audience for fifteen weeks straight. But wouldn't it be a lot less painful for everyone concerned to communicate these lessons by ceremoniously tossing the minimum wage into the dustbin of history?


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    TRACKBACKS (3 to date)
    TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/637
    The author at amcgltd in a related article titled Just Get Rid of It writes:
      Most people are shocked when I say I'm in favor of abolishing the minimum wage laws outright. Since I'm neither an economist, a libertarian, or particularly coherent, my subsequent explanations typically lead to a rather "Zuckerist" response. So I'm... [Tracked on January 26, 2007 9:08 AM]
    COMMENTS (21 to date)
    miltownkid writes:

    A few months back I took an interest in figuring out why there was inflation. A friend/mentor gave me a stack of books to go through (Basic Economics, Economics in One Lesson, etc.) and my mind has been thoroughly blown.

    To respond to the post. I don't think the symbolic value of minimum wage is worth the negative effects on the economy. Just wanted to let you know you have a new reader.

    Bruce G Charlton writes:

    I agree - abolishing the minimum wage is the kind of symbolic policy which is a move towards long-termism.

    It is also another step in the direction of separating economic policy from politics - which is the long-term trend in modernizing societies. Such steps are usually very successful - for example, making the Bank of England institutionally independent of political influence was able to remove interest rate manipulations from the policy toolbox of governments seeking re-election - and has been credited with helping the UK's very significant economic recovery.

    I think the same kind of long term benefits will be seen for societies which are able to remove 'micro' policies to do with employment regulation out from the political arena.

    AS AK says, these things are a matter of public education/ propaganda - and will require a few months of public preparations by a motivated government to introduce the issues and logic.

    Nacim writes:

    Unfortunately most people would simply interpret the abolishment as a symbol of how much government panders to the business class and doesn't care about the workers of the country.

    The symbolism of having a minimum wage isn't "We value marginal gains to income at great expense to employment", therefore there's no real reason to expect abolishing it will have such rational and well-grounded symbolism. Too bad.

    Stephen writes:

    One more reason to abolish the minimum wage---we'd be fighting crime! If we set an artificially high minimum price on all services, some low-skilled services will go unprovided. The higher the mandated price, the fewer services that will get performed, the greater the inconvenience to employers (dirtier facilities, slower interoffice mail, rotting fruit, etc.), and the greater the temptation to hire workers illegally at below minimum wage.

    Once we're in for a penny we may as well be in for a pound. We're breaking the law anyway, so why should we withhold taxes, check for green cards, provide health care, etc. The encouragement of criminal behavior is surely an unintended consequence, but it can be foreseen.

    BTW, another example of do-goodism with unintended consequences: raising cigarette taxes.

    Daniel Lurker writes:

    How come The Science Channel has apocolyptic sci-fi content (eg here's our dramatic presentation of the worst possible volcano eruption we could ever conjure up) but there is no equivelant for regulatory/policy failures?

    Sure, there are the statist dystopias, but what factors cause there to be more dorks that enjoy seeing lava wipe out the West Coast than like theorizing about bad public policy? If we can have geologists offering up their thoughts on what might happen if some volcano errupts why not have "100% tarriff's on all goods: Meet your grandfathers standard of living" with mainstream economists discussing what would happen for three hours. Sure, the policy's effects would spread as quickly as a supervolcano, but the consequences of bad policy are even more severe in the long run, if not as transparent.

    Can this ALL be explained by anti-economic bias? I'm certainly not represenative of the general population, but can they really be any less ignorant of science than they are of economics?

    Nacim writes:

    What an awesome idea Daniel. You already have a great title for the first episode. It's definitely a show I'd want to watch.

    W.F.Haithcock writes:

    Abolishing minimum wage would be a terrible mistake. It was established to afford people a minimum standard of living and by abolishing this standard it would only add to the divide between the have's and have not's. The economic fallout could be devastating from this if a bar isn't kept. If company's want to make more money the answer isn't to pay workers less, it is to become more efficient.

    Randy writes:

    W.F.,

    I see no reason whatsoever to believe that eliminating the minimum wage would cause workers standard of living to fall. The only reason that such laws ever pass is that they apply to so very few workers. As a symbolic and political gesture, the minimum wage works. Economically it has very little impact.

    Randy writes:

    Bryan,

    You seem to be assuming that everyone has the ability to make themselves more useful. I'm not sure that is true. The minimum wage exists because those who have little or nothing of value to trade will attempt to use force instead. We can say philosophically that it is better to trade than to use force - but those with nothing to trade know better. Force works. And that is why it must be opposed.

    TGGP writes:

    W. F., paying less for labor IS becoming more efficient. I would also guess that employing more workers for less was more efficient than employing fewer workers for more, or there would be reason to force companies to do so. Saying "eliminate waste" or "be more efficient" is what people say in order to avoid the hard decisions without offering any real plan to achieve those goals.

    Bob Knaus writes:

    Raising the minimum wage comes into the political cycle every few years. Someone interested in making money ought to investigate its correlation to stock market cycles. Might be a leading indicator!

    Leading up to the previous minimum wage increase, the WSJ published an op-ed piece with the memorable phrase "Most poor workers make more than the minimum wage, and most minimum wage workers are not poor." This was intended to debunk arguments that raising the minimum wage would help the poor. The article pointed to research showing that the typical minimum wage worker was young, and part of a household above the poverty level. Heads of impoverished households, on the other hand, generally made more than the minimum wage.

    What this argument did, of course, was make a minimum wage increase more politically palatable. If the actual worker most likely to be hurt by a minimum wage increase is a teenager at Chick-Fil-A who lives in the 'burbs, what is the problem? Those kids can just park themselves at the community college, where they "belong." Why should they stand in the way of politicians helping the poor?

    Just as minimum wage increases can have unintended consequences, so can arguments against them.

    Lord writes:

    Yeah, blame the poor for their poverty. It's all so obvious. That's a good way to make friends and influence people.

    Tom West writes:

    There's very little doubt that abolishing the minimum wage would be a symbol alright. But I question what that symbol would be. Since in contemporary society we strongly tie one's value as a human being to one's wages, I strongly suspect that the message of abolition would be:

    "Human beings have no minimum worth."

    A judgment that I suspect many of the readers here share, albeit a sentiment that the majority do not.

    Tom West writes:

    It is also another step in the direction of separating economic policy from politics

    I'm not quite certain how this is necessarily a bad thing.

    Economics is value neutral. One can quite easily state that economically we would be better off by with mandatory execution of the permanently infirm or some other absurd proposition. Why do we reject it? Because the non-economic disadvantages strongly outweigh the economic benefits.

    Economic policy *is* political policy. (Political policy meaning policy that affects the social relationships.) Economic policy tends to be policies that promote wealth generation. However, such policies may have non-economic effects that may outweigh the perceived economic benefits.

    The example was a case where governance benefitted only the government rather than the people as a whole, but I can think of a myriad of cases where the policies of economic growth would not (in the opinions of the governed) be worth the costs involved. (And before we get into the government never benefits the people, I think you should check with the people. The opinion is towards *more* government, not less.)

    Bryan, apparently, would see the population disempowered rather than allow them a voice to oppose policies of growth maximization. Another example of the fact that when you're very good with a hammer, everything looks begins to look like a nail.

    Tyler Kirkpatrick writes:

    I like the abolishing of minimum wage argument for two reasons. It makes sense to say that the labor markets are governed by supply and demand. If the demand is high for workers then they should get paid higher than just minimum wage. The second reason I like the argument is the productive part. If a person becomes more productive then they should be paid more money. The more productive a person is the more money they should make.

    Kelly writes:

    I support the idea of having a minimum wage. It keeps employeers from paying their employees too little to live on. If there were no minimum wage, most employeers would pay their workers next to nothing. I believe that abolishing minimum wage would have catastrophic effects on middle and lower class people nation wide. However, I do not think that minimum wage should be raised. When this happens, it only causes inflation and does nothing to help people with income levels close to minimum wage earnings.

    Zach Phillips writes:

    Ok, Lets say that ideally, the lack of a minimum wage would cause most competent people to work harder, and do what is necessary to increase their economic standing in the world. If this happens, the lowest paid jobs in our society now, would be filled with nothing but incompetent idiots.

    I'm sure alot of people who read this remember their first jobs at a grocery store, or a car wash, or any other job where you could work when you were 15-16. I'm pretty sure most of you didn't plan on keeping that job very long either in hopes of finding something with better pay.

    Whether or not we have a minimum wage or not, we still have a system where increased skill and effeciency rewards citizens with better jobs.

    I'd be really afraid that the lack of a minimum wage would either increase the price of our everyday services, or reduce the quality of help to the point much lower than what we have today.

    Ricky writes:

    I agree that minimum wage is currently just a symbol in our working society today. Also, it would be much better to just get rid of minimum wage all together. Today minimum wage just seems to be a price floor, and the wages should be controlled in a free market where supply and demand comes into play. I'm just not sure that the public realizes that it would be better without a minimum wage.

    arlan writes:

    Abolishing minimum wage would be beneficial to businesses as well as workers themselves. It is currently a price floor for businesses causing a surplus of workers which means higher unemployment for people. If minimum wage were to be abolished, businesses could pay workers what they deserve based on their job performance and the job itself. Workers would be forced to work hard and become as productive as possible. I know how frustrating it is for an individual to work hard and be productive as possible only to be paid the same amount as someone who goofs around the whole day. A lack of minimum wage would force these "slackers" to be more productive.

    Candra writes:

    I have heard all the talk about raising the minimum wage, however I never thought about abolishing it. I think in theory it is a good idea, but in actuality it would never work. I mean labor markets really are governed by supply and demand. It makes sense to say that most people work harder to make more money; that’s just how society is. In an earlier comment, someone used an example of a worker at Chic-fil-a so we’ll just go with that one. Obviously the worker has a demand for money, so he supplies himself with that by getting a job. If there were no minimum wage, who’s to say how low the employer would pay. The minimum wage is there for that reason. So the Chic-fil-a employer, without a minimum wage, would probably make very little. I know that people have needs and wants. If the employee makes very little, how is he going to supply himself with his everyday demands, like food and shelter? This contradicts the reason he got the job in the first place. Minimum wage was established to keep employers from paying too little so people could take care of their needs.

    Paul writes:

    See the one problem that I have with the "pay everybody what their worth" argument is (a) how exactly does one measure the value of labor in every job for every person? and (b) certainly there is some cost involved in something like this so would it be worth paying somebody a $1/hr if it cost you $10/hr to track and monitor that in fact they were only worth $1/hr? Isn't this why a lot of low wage employers pay min wage + x% to everybody and give raises with a 25 cent spread? Because it's not worth their time try to value workers down to the penney.

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