David R. Henderson  

Henderson on Minimum Wage for Prager University

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Prager University has published a beautiful graphic-filled video on the minimum wage with me as the "talent."

You can see it here or here.

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CATEGORIES: Price Controls

COMMENTS (20 to date)
Maniel writes:

Prof. Henderson,
I am not often sympathetic to self-promoters, but in this case, I must agree - a star is born. Nicely done!

michael pettengill writes:

To go along with that, he should explain why the minimum price for cars and gasoline should be $0.00.

To take a low wage job, the unemployed high school dropout will need a reliable, thus new car. But as he has no money, the price for the car should be zero. To price the car higher than zero denies the unemployed high school dropout a job. Gasoline should likewise be priced low enough for the $5 per day worker to drive 150 miles each way to the job.

It is the government regulations requiring automakers and gasoline dealers pay their supplier; the government should instead support the automakers paying its suppliers zero and obviously paying shareholders nothing.

john hare writes:

The comments following the video were entertaining to say the least. The ones advocating a 'living wage' as a minimum wage and 'business is greedy', should ask themselves why a greedy business owner like me would pay immigrants two to three times the federal minimum. The hint should be obvious, but won't be to them.

john hare writes:

I will hire almost anyone that will make me money. Attempting to use the government to make me hire someone I cannot make money off of is attempted mugging using government as the weapon.

Unlike other forms of theft though, I can choose not to walk down the alley when I know the mugger is there.

David C Thomas writes:

An additional point not addressed, is that as wages are arbitrarily raised, employers are incentivized to automate those jobs out of existence. Thus gasoline station attendants and grocery store clerks are replaced by self service technologies and barcode scanners. I was recently shopping at a grocery store in San Francisco, where the minimum wage is particularly high. Every chechout station was automated and even the fresh produce was sold in pre-packaged barcoded packaging.

David R. Henderson writes:

@michael pettengill,
For once, you and I agree. If there is to be a government set minimum price for cars, then, yes, I think that minimum should be zero.

David R. Henderson writes:


paul writes:

Just today I got this in the daily email from EaterSF. A restaurant has already decided to close since the minimum wage in SF will almost certainly be increased next week.

Daniel Kuehn writes:

David Henderson -

"For once, you and I agree. If there is to be a government set minimum price for cars, then, yes, I think that minimum should be zero."
Indeed :)

In the other post I argued against you that due to context and social convention sometimes "never" doesn't really mean "never". But I don't think I'll argue that "minimum" means "maximum".

Daniel Kuehn writes:

Although I do disagree with you on the level of the minimum price. If government were to set a minimum price for a car it should probably be some negative value. After all, what if I want to junk my car but don't want to go to the trouble of handling it myself?

Mike Hammock writes:

I agree with Daniel Kuehn. The minimum price for a car should be negative infinity. What if I want to pay someone to take my crummy car away? That would mean it has a negative price, but such transactions shouldn't be forbidden.

Similarly, the minimum wage should be negative infinity. That is, some people might be willing to pay for work experience (we often call them "interns"). This, too, should be allowed.

MG writes:

So, Daniel and Mike have already hinted at a solution to the problem of zero bound nominal interest rates. Another minimum price that should not only be zero, but could also be negative.

David r Henderson writes:

Daniel and Mike,
You're both right

michael pettengill writes:

For once, you and I agree. If there is to be a government set minimum price for cars, then, yes, I think that minimum should be zero.

Do you agree that the government laws requiring you pay your workers and suppliers is wrong and you should be allowed to pay them $0 so you can sell for $0?

If no customer can afford to pay the price that covers all your costs from paying suppliers and labor, then you become unemployed.

Worse, your customers will never be able to work because they will never be able to get to the $0.10 wage job.

Urstoff writes:

Given that there are much better ways to improve the lives of the poor, and given that the empirical evidence on the minimum age is mixed at best, I can't see any reason why any person who thought about it would support any minimum wage policy.

Economist Robert Murphy discusses minimum wages in detail. It is worth a careful read.

I note that the people employed at the old and new minimum wage may not be the same people. If an employer must hire at a minimum of $10.10/hr, he will hire more efficient people. A later review may show that "the number of jobs at the minimum wage" has changed little, but the prior people are now unemployed, forgotten, and economically injured.

=== ===
[edited] There is a second, and independent, problem: Raising the minimum wage might represent a drastic harm to the most vulnerable and desperate workers if the specific employees who would be working for $10.10 an hour are different from those who would be working for $7.25 an hour. What could happen is that the higher wage would attract new workers into the labor pool, allowing firms to become pickier and, thus, to overlook the least-productive workers, who would remain unemployed or lose their jobs to more-highly-skilled workers.
=== ===

The increase from $7.25 to $10.10 per hour is 39%. An employer would need 39% more productivity overall to make the choice of a more expensiver worker as profitable. But, say the employer can only get 25% more productivity at that higher wage. Without the minimum wage increase, the employer is content to employ the original worker and to hire others at that wage. After the minimum wage increase, the employer will immediately fire the low-wage worker and hire the high-wage worker. The employer suffers 39% higher wages at only 25% higher productivity, but it is the best he can do. If the market will not tolerate the higher prices associated with the unavoidable lower productivity, then the employer will not hire anyone and may forgo some or all business.

Substituting robots may not be an option. Still, the low wage workers will be fired.

ThomasH writes:

I notice that the Prager University series on economics, at least in the examples they use are all "conservative friendly." There is one on the distortion of the minimum wage but not on the distortions that make the average business tax rate different from the marginal tax rate. Innovation is discouraged by "regulation" but not in a video by patents and copyright. Welfare for persons is too high but no video on corporate welfare. Federal Expenditures too high? No mention of Defense, DHS, VA, NSA.

There is not much wrong with any one of the videos, but combined they lead to the idea that libertarians (or worse, that economists) have "no enemies the Right."

David R. Henderson writes:

And your point is what: I should have turned them down and waited until someone asks me to do a video on corporate welfare?

ThomasH writes:

I meant no criticism of you in your presentation. The criticism is of Prager's bias.

It is my impression, however, that minimum wages are mentioned here more often than all the special deals that make average tax rates differ between firms and sectors, (or even that there is no good reason to tax business income at all) and I think the amount of transactions across those margins are far greater than the distortion of the minimum wage.

But if you work up a good presentation on business taxation, maybe Prager will put it on. :)

In addition to the point about efficiency -- Harberger's little triangles might be pretty big -- it would be a good way to tell an Olsen story about why businessmen do not lobby for elimination of business taxation.

Garrett writes:
michael pettengill writes:

Do you agree that the government laws requiring you pay your workers and suppliers is wrong and you should be allowed to pay them $0 so you can sell for $0?

I think the idea is that, if a potential employee and I agree to a wage, the government shouldn't say that we can't do business together if that wage isn't high enough for the government's liking. In your example, if both parties don't agree to the $0 price, then having the government force the two sides to make a deal would be wrong.

I think that's the key thing that people who have a problem with minimum wage laws are saying: the government is rejecting a transaction (labor for pay) that both sides have voluntarily agreed to, with no coercion, because the government doesn't like the price at which the deal was struck.

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