David R. Henderson  

Seinfeld, Costanza, and the Minimum Wage

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In response to yesterday's post about the minimum wage, Bruce Bartlett mentioned an episode of Seinfeld. That, plus the comment after Bruce's, made me think of a different Seinfeld episode. One of the major points I made in yesterday's post is that those already paying the minimum wage are helped, not hurt, by a minimum wage increase imposed on their lower-wage competitors. The second commenter, Chris, took issue with that, writing:

I think the NYT reporter was correct to express initial surprise. The dollar cost might be zero, but there is a cost to the competitve advantage such a firm [a higher-wage firm] enjoys in attracting marginally more productive workers.

I think Chris's point is incorrect and, believe it or not, the easiest way to see that is to remember another episode of Seinfeld. Here's what I wrote in November 2006:

When the minimum wage goes up, jobs that wouldn't have been attractive to some people will be attractive to them. But the objection to the minimum wage has never been about whether more people would be willing to work at a higher wage than would be willing to work at a lower wage. The problem is that being willing to work at a job isn't enough: someone has to be willing to offer you that job. If simple willingness to work were enough to get you a job, then a classic "Seinfeld" episode wouldn't have been funny. In that episode George Costanza is out of work and wants a job. He sits around with Jerry Seinfeld trying to decide what kind of job he should get. George comes up with the idea of being a sports commentator and lays out how much fun that would be. The audience laughs because they realize that George's simple willingness to work is not enough: another necessary condition is that someone think he's good enough to be worth the high pay that sports commentators get.

In the article that this quote is taken from, I was pointing out that a Michael Dukakis proposal to help Americans at the expense of illegal immigrants by raising the minimum wage made no sense and, in fact, would do the opposite. But the point with the woman paying the higher-than-minimum wage is the same. She would not be hurt by her competitors being forced to pay a higher minimum wage because the problem is that the minimum wage constrains the demand side, not the supply side. Indeed, by increasing the effective supply to her, the minimum wage could even allow her to reduce the wage she pays.

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CATEGORIES: Labor Market

COMMENTS (4 to date)
Jeremy N writes:

Mr. Henderson,

I tracked down that transcript on the hearings for the minimum wage, and I found it fascinating to read. Is this what goes on in Congressional hearings even today?

Clarence Mitchell, the director of the Washington Bureau of the NAACP testified,
"I think, even further, Senator Kennedy, you have a situation where there is a substantial migration of the population in the South, migration from agricultural areas to urban areas, and there is a high migration from the southern urban areas to northern urban areas.
"A large part of that is because of the differential in wages. If we could eliminate that, it could be an important factor in stabilizing population movement."

Was population movement a problem of the late 50s? Why would the director of the Washington bureau of the NAACP care about population migration from agricultural to urban or southern urban to northern urban areas?

Granite26 writes:

I'm not sure I follow you? Isn't the danger that the McDonald's employee making 2 dollars an hour over minimum wage at the beach will decide to get a job at Burger King closer to home? Either MacD's must raise it's rates to 2 dollars over the new minimum wage or suffer the loss of qualified employees to a BK which is now forced to pay higher rates and could thus trade up it's employees for no (additional) cost

PeterW writes:

If we assume that illegal immigrants are willing to work for lower wages than native-born Americans, doesn't that imply that Dukakis' plan could theoretically be sound? At best the benefits to those who can get high-minimum-wage jobs will outweigh the increase in unemployment; at worst it will hurt illegals more than it would hurt native-born Americans.

Greg writes:

Depends how you look at it. If all the employees in question are equivalent, then yes, raising the minimum wage increases the supply available to the firm. But the commenter was talking about marginally more productive workers, which would likely be more constrained in supply and in higher demand. If more jobs become available at their wage level because it's now the minimum wage, it could be more difficult for the firm to attract and keep them. Firms would also bid up their wages to the same level above the new minimum wage, so compensation costs would rise for firms looking for these more qualified workers.

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