David R. Henderson  

I'm an Outside Agitator

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Frequent Econlog commenter Greg G wrote recently:

But there is something very strange about this debate [about the minimum wage]. All the agonizing about the suffering that the minimum wage causes to poor people seems to come from relatively wealthy people. The minimum wage is quite popular among poor people.

When will people start coming forward and self identifying as actually wanting to exercise their liberty to work for less than the minimum wage? Even the long term unemployed don't seem to do this. Quite an extraordinary amount of ink is spilled defending a freedom that so few really seem to want to exercise.


To this I have six answers:

1. Actually, the first time the U.S. Supreme Court overturned the minimum wage, it was, in part, because a female elevator operator came forward [her erstwhile employer did too] to complain that it was putting her out of work. See Adkins v. Children's Hospital. Here's the relevant section of the decision:

In the second case the appellee, a woman 21 years of age, was employed by the Congress Hall Hotel Company as an elevator operator, at a salary of $35 per month and two meals a day. She alleges that the work was light and healthful, the hours short, with surroundings clean and moral, and that she was anxious to continue it for the compensation she was receiving, and that she did not earn more. Her services were satisfactory to the Hotel Company, and it would have been glad to retain her, but was obliged to dispense with her services by reason of the order of the board and on account of the penalties prescribed by the act. The wages received by this appellee were the best she was able to obtain for any work she was capable of performing, and the enforcement of the order, she alleges, deprived her of such employment and wages. She further averred that she could not secure any other position at which she could make a living, with [261 U.S. 525, 543] as good physical and moral surroundings, and earn as good wages, and that she was desirous of continuing and would continue the employment, but for the order of the board.

2. I remember in about 1977, when President Carter was proposing an increase in the minimum wage, a front-page story in the Wall Street Journal about a social worker named Betty Jackson who had a message for those who wanted to raise it: "Drop dead." Why? She was having real trouble placing black teenagers in jobs. And before you dismiss the WSJ, remember that this is the news section, which had and has some of the most left-wing reporters of any major newspaper.

3. I occasionally run into college students who would much rather be paid a wage below the minimum wage to take an internship. Right now, they can't, and would much rather earn, say, $5 an hour than the $0 per hour that many internships now pay.

4. It is often wealthy people who agitate for those who are less wealthy. There's a long honorable tradition of this.

5. It's quite conceivable that many people put out of work by the minimum wage would rather have jobs at a wage less than the minimum than at no wage at all. I would bet that few of them understand that the minimum wage is causing their problem. So, given the general economic ignorance of the public, the surprise would be for relatively uneducated teenagers to understand the harmful effects of minimum wage laws when even a large percent of wealthy people don't understand.

6. I don't think it's that strange that people not directly affected in a big way care a lot about people who are and that the people most affected don't agitate much. Hundreds of thousands of people are in prison for buying, selling, using, or producing drugs. Yet I know of few of them who explicitly advocate ending the laws that put them in prison. That has never stopped me from advocating ending those laws. Indeed, one reason I don't use illegal drugs, besides the fact that I don't want to get into trouble with the police, is that I think I will be more credible arguing against laws that I don't break. Co-blogger Bryan Caplan advocates allowing people to immigrate to this country. I don't know whether he thinks that there are many people in other countries advocating relaxing or ending U.S. immigration laws. That doesn't stop him--nor should it.




COMMENTS (23 to date)
Matt Moore writes:


In a recent Swiss referendum on the minimum wage, 60% of people earning less than the proposed minimum voted against:

DJ writes:

What always frustrates me about minimum wage debates, even among sophisticated economists, is that they almost always focus on disemployment effects.

There are lots of other interesting things to say about (and against) minimum wage policies, but only rarely do you hear them:


  • Price isn't the only margin - unemployment may not go up, but working conditions might suffer.

  • Number of employees isn't the only variable - workers might end up working fewer hours.

  • "Job gentrification" can happen - more highly-skilled workers may switch to minimum wage jobs and (temporarily) crowd out low-skill workers.

These aren't new ideas, but whenever the subject comes up on, say, NPR, they'll quote two economists who say opposite things about potential effects on unemployment, and then move on. Please, let's improve the debate!

Roger McKinney writes:

Greg's response is typical of socialists who embrace Marx's polylogism - the false idea that every group has its own logic and cannot understand the interests of others. But Marx was wrong; anyone can understand those of another group simply by talking to them and putting oneself in their situation.

Greg seems to think that the wealthy can never have any interests but increasing their own wealth an power. But it is possible that the wealthy also care about the poor, contrary to Marx's ignorance.

Few among the poor are educated enough in economics to be able to analyze the logic of min wage. However, the theologians and scholars of the School of Salamanca, Spain analyzed it for them in the 17th century. They were not wealthy or poor men, but men who had devoted themselves to helping the poor. They determined that minimum wages hurt the poor more than they help.

JLV writes:

There's a Hayekian reading of Greg's criticism, though, right? Perhaps poor people have local knowledge of labor markets that rich outsiders lack?

David R. Henderson writes:

@JLV,
Not really. They might have local knowledge of labor markets, but that doesn’t give them local knowledge of the effects of price controls.
@DJ,
Good points. I certainly wasn’t restricting myself to disemployment effects.

Greg G writes:

Roger,

I do not hold any of the ideas you attribute to me. In fact, as I indicated in my original comment, I am not even a supporter of the minimum wage. I think David makes good points in his response.

But I do continue to see an irony here. Libertarians normally like to emphasize the idea that individuals know what is best for themselves especially when it comes to their own incomes. This issue represents an exception to that.

It remains extraordinarily rare to find unemployed people who object to the fact that they cannot be hired at less than the minimum wage. Yes, there was that plaintiff from 1923. Yes, occasionally an intern would prefer to earn more than zero even if it is less than minimum wage. It really doesn't take a lot of education to grasp the concept that a minimum wage will eliminate job offers below the minimum wage. The fact remains that the vast majority of poor and unemployed people support the minimum wage.

David R. Henderson writes:

@Greg G,
But I do continue to see an irony here. Libertarians normally like to emphasize the idea that individuals know what is best for themselves especially when it comes to their own incomes. This issue represents an exception to that.
There is no irony. Most individuals know better than government officials how to use their own incomes. But I know many libertarians--and I am one--who think that people don’t understand the unintended consequences of government policy. The minimum wage is no exception.

michael pettengill writes:

Let's say

1) I'm a retailer, and the people in my area to be paid so little they qualify to get stuff for free at the goodwill which donated in the wealthy areas

2) I'm a car dealer, and I can only sell cars if I make loans where the payments are made weekly and I must work at night taking back cars when paychecks are short

3) I'm an ER doc who sees the same people over and over because they can't afford their insulin or inhaler and I am constantly being berated for giving the free meds instead of writing scripts I know they can't fill

4) I run a soup kitchen and food bank and I'm always desperately dialing for donations and driving all over for food that has too many calories and too little nutrition, but the families need food for their kids and bad food is better than nothing.

5) I run a homeless shelter and have found a large vacant house the owner can't sell he'll let me use for several families in need, but the neighbors are calling the city officials trying to keep the homeless out.

6) I'm a parent fearing for the future of my kids who can't move out because they don't make enough, need me to keep paying for their car so they can get to a job that does not pay enough to own a car, and can't get an education because their work schedule is so erratic they can't attend all classes forcing them to drop out and triggering loan repayments that take all their earnings, and I will need to stop working and won't be able to keep the house for them to live in.

7) I'm an economist flailing around trying to explain the lack of GDP growth, the huge increases in debt of governments and consumers that they can't even pay the interest on much less service, the increasing number of workers reaching old age with no retirement savings and totally dependent on welfare for the rest of their lives, the drop in workers in the labor force even as profits and the stock market are hitting record highs, but never seeing the low wages for significant and increasing number of workers as connected.

I grew up when TANSTAAFL economics, when economics was the dismal science because it was zero sum: you could not consume more than you produced, buy more than you were paid, and debt if you could get is was a last resort and you paid off the debt as fast as possible. The economy grew and people did a lot better because wages were always rising, along with benefits.

Since 1980 I'm increasing realized that everything was reversed, and that instant gratification, lower real wages, benefits, and job security, more debt by eliminating bank regulations were going to, less investments, more monopoly profits, and the price of decaying capital increasing was the key to a much better economy than existed in the 50s, 60s, and 70s.

Labor income is not a drag on the economy, its the fuel of the economy. Lower labor income, the economy collapses.

Pajser writes:

My guess is that they believe that minimum wage is good for them, because they expect that in long terms, they are better off.

For instance, if they expect to be employed 5% less time, but when employed, they are paid 10% more - it is good for them.

Pajser writes:

Roger McKinney:

"Greg's response is typical of socialists who embrace Marx's polylogism - the false idea that every group has its own logic and cannot understand the interests of others. But Marx was wrong; anyone can understand those of another group simply by talking to them and putting oneself in their situation."

I do not recall that Marx said that. Any citation?

mucgoo writes:

@Greg G
It really doesn't take a lot of education to grasp the concept that a minimum wage will eliminate job offers below the minimum wage.

An awful lot of educated people believe in the lump sum of labour and jobs fallacies. That's prerequisite to considering minimum wages consequences.

BC writes:

"Libertarians normally like to emphasize the idea that individuals know what is best for themselves especially when it comes to their own incomes. This issue represents an exception to that."

I don't think this is an exception. An obvious solution to the minimum wage debate would be to allow any worker to voluntarily waive the minimum wage requirement and accept employment at less than the minimum wage, entirely at the worker's discretion. Who would be most likely to oppose such an opt-out provision, libertarians or minimum-wage proponents?

Thomas Boyle writes:

BC makes the relevant point.

The "need" for the minimum wage law itself IS evidence that there are low-income people who wish to take jobs at wages below minimum wage.

And supporting the law means you acknowledge that fact.

Shayne Cook writes:

Hi Greg G,

You ask, "When will people start coming forward and self identifying as actually wanting to exercise their liberty to work for less than the minimum wage?"

I suggest there are millions of people who have already "come forward". And you can find them easily by first starting with all sectors which are exempt from minimum wage laws - not the least of which is food service (where tips are prevalent) and agriculture businesses. Both of those sectors, and others are exempt from minimum wage laws.

But there is another whole class of folks who have "come forward to exercise their liberty" in this regard. They are the entire class of folks who start and operate small businesses, the "mom and pop shops". Given the 12 to 16 hour days they work, with no vacations, no time off, and the relatively low returns to small operations, those folks often work for well less than minimum wage. I've done it myself.

Just because you don't recognize them doesn't mean they don't exist. Indeed, there are millions who already have, and continue to "exercise their liberty" in this regard.

Don Boudreaux writes:

David,

Very nice post.

On the point (made here especially by Greg G) that low-skilled workers' support for minimum-wage legislation might reflect some special local knowledge on their part, or ought to be respected because it is their preference, I remind EconLog readers of the work of EconLog's own Bryan Caplan. Especially relevant here is Bryan's 2007 book, The Myth of the Rational Voter.

In that superb book (which builds on the pioneering 1993 volume by Geoff Brennan & Loren Lomasky, Democracy and Decision), Bryan explains that a person's preferences are to be 'trusted' - a person's expressed preferences are to be regarded as reflecting that person's reasonably informed opinions and evaluations - only insofar as that person's choices are decisive (that is, the outcome of the choice process depends tightly upon how that individual chooses) and insofar as the costs and benefits of that person's choices are internalized on him or her. A voter - even one destined to lose his or her job if the minimum-wage rises - does not meet these criteria. Thus, the myth of the rational voter - a reality that, as Brennan, Lomasky, and Caplan show is not only consistent with the general economic case for rational individual action, but is implied by it.

Jon Murphy writes:

I wonder if there is another option:

Those who call for minimum wage increases realize that some jobs may be lost, but they do not think their job could be? The whole "it won't happen to me" mindset?

I have exactly zero evidence to suggest this is true. It's just something I'm thinking of.

It's a good question Greg asks.

Jon Murphy writes:

@JLV, if one assumes that workers have special knowledge on local labor markets, then that is most emphatically an argument against minimum wage, not for it. Minimum wage, remember, is spread across everyone, not just the local labor market. $15/hr may be just right for Boston, but too low for New York City, and too high for Savannah. Heck, it might be just right for South Boston, too low for Back Bay, but too high for Dorchester.

If you are making the argument for minimum wage because workers have a better understanding of the local level than "outsiders" do, then that holds true only at the super-local level. Anything above the neighborhood level, and the argument falls apart.

Jon Murphy writes:

I guess, if we want to flip Greg's question on its head:

If minimum wage is actually good for businesses (by reducing turnover and increasing productivity, as well as supporting consumer demand, as some have suggested), why do so many businesses oppose it?

It's not a perfect analogy, as there are some businesses who do lobby for minimum wage (Wal-Mart comes readily to mind), but I am also sure there are some minimum-wage workers who lobby against it, too.

Thomas writes:

These anecdotes just show that some workers are harmed by the minim wage. It is not the best way to redistribute income to low paid workers. They do not show that low paid workers as a group do not benefit. For that we need studies about elasticities wherr i think most show that expenditures on minimum wage workers rises

David R. Henderson writes:

@Thomas,
This post is to respond to Greg G’s point. Showing that low-paid workers as a group don’t benefit is tangential to that.

hazel meade writes:

I will make a prediction. When the $15 minimum wage goes into effect in those place adopting it, there will be a measurable negative effect on the unemployment rate among young black males

Mark V Anderson writes:

I agree with Greg G that it is ironic that most low wage workers support a minimum wage, and also increases in the minimum wage. And it does add to the irony that libertarians always preach that each person should be allowed to their own pursuit of happiness.

I think that minimum wages are a terrible burden on the poor, so I am not happy with this irony. Perhaps it is partly explained by the fact that it is the biggest losers amongst the poor that lose out the most (lose their jobs), and these won't be the opinion leaders in that group. Although it is also true that life becomes more difficult for all the poor with a minimum wage, since it harder to get new jobs, and much easier for employers to treat their workers horribly. But those results are even harder to see.

Heck, when I was young and poor I celebrated when the minimum wage went up. It simply takes sophistication to understand the whole TANSTAAFL concept, and most of those on the bottom don't have it. Ironic it will remain.

Daublin writes:

The assumptions don't jive with my discussions with uneducated and unemployed people.

In general, yes, they are in favor of the "minimum wage". However, if you ask them if they'd be willing to work for almost nothing, just to get a foot in the door, they generally agree with that too.

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