Art Carden  

Minimum Wages, Raising Rivals' Costs, and Press Releases

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Last week, David linked to a reprinted press release from Reuters titled "Business Owners Welcome White House Support for $10 Minimum Wage." Here are a few thoughts:

1. I think the headline is meant to create mental disequilibrium for the readers, most of whom are likely wedded to the idea that business owners as a class are in perpetual conflict with workers as a class. If even business owners think it is a good idea, then it must be a good idea.

2. It's most likely to be an exercise in raising rivals' costs, as David points out. There's a double dividend: not only do firms signing on to such things get less competition, they get to bask in the warm glow of public approval because of their enlightened practices. It's a particularly insidious brand of evil because it takes advantage of the public's economically-ignorant good intentions.

3. I propose another of Carden's corollaries to Godwin's Law: In any discussion of minimum wages, one participant will either appeal to Card & Krueger or claim that the disemployment effect of minimum wages is so small that there's still a net transfer to workers. Perhaps, but competition for artifically-scarce employment opportunities erodes the value of that transfer. I explained it in a article over the summer.

4. One reason this caught my eye is that I got this press release from the same organization. David is right that the small print on the Reuters site is very small. Less-than-careful readers would likely read this and think it was a Reuters news story, or at least something that has been carefully vetted by Reuters journalists, rather than a press release written by an ideological organization.

4a. Perhaps I'm just naive, and maybe that's what most "news" is. If so, it's just one more reason to Avoid News.

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COMMENTS (6 to date)
Bill writes:

Regarding your #2, could we say that the firms signing on are both (pretend) Baptists AND Bootleggers?

pyroseed13 writes:

I think the simplest explanation is that business owners are just like your typical voter: They don't actively vote in their self-interest, but in the interests of "society."

Maniel writes:

A gag, n'est-ce pas? Nothing, not even the POTUS, prevents a business owner from paying above the current minimum wage. If by some chance it's not a gag, we can look forward to a flurry of helped wanted ads for unskilled workers at $10 and up.

Pajser writes:

Increase of the price of the product/service is smaller than wages increase, and if small enough, decrease of demand will be smaller as well, hence with some redistribution the workers (as a class) are better off.

Although, as Carden wrote, the capitalists "can pay the higher minimum wage, but they can adjust other aspects of the jobs to account for it." they can also reduce the profit, particularly, the part they use for personal consumption. That is the real gain for workers and the society.

Hazel Meade writes:

Perhaps the disemployment affects seem small because we're using the wrong standard to measure unemployment. You can't use the overal unemployment rate, because most workers do not work at the minimum wage. A minimum wage increase will have zero effect on workers that typically make more than the new minimum wage already.

What you need to do is confine the measure of unemployment to *just* classes of people that are on the marginal edge of the employment scale, such as poor minorities, teenagers trying to get their first job, and college students working part time. I think it's fair to say that unemployment rates in those groups show very significant effects whenever there is a recession. So I suspect that a proper study would show an effect on those groups if you isolate their unemployment rate from the overall UI rate.

Rick Hull writes:
4a. Perhaps I'm just naive, and maybe that's what most "news" is. If so, it's just one more reason to Avoid News.

(I didn't read the PDF, mea culpa) You should avoid "push" news. The harder the push, the more you should step aside. The cool kids pull their news. Thanks internet!

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