Emily Skarbek  

Teaching the Minimum Wage

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When I teach the Principles of Economics, I often note the relationship between positive analysis and normative judgments. One of my favorite ways to teach this is when we cover the minimum wage. Using Thomas Leonard's article Eugenics and Economics in the Progressive Era, I explain how both proponents and opponents of the minimum wage agreed on the effects - that binding price controls would cause job losses and unemployment. There was no disagreement on the fundamental economic analysis. The difference of opinion between advocates and opponents of minimum wages was their normative assessment as to whether the resulting unemployment was socially beneficial (and normatively desirable) or socially costly (and undesirable).

The advocates for minimum wages - like Sydney and Beatrice Webb - argued that minimum wages were a good policy precisely because they identified the "unfit" and would disemploy members of that group. Alfred Marshall, Pigou, John Bates Clark and other neoclassical economists argued that minimum wages were a bad policy precisely because they cause unemployment and job loss.

Dierdre McCloskey taught me quotations are useful when you either want to give an angel her voice or the devil his due. So I take the opportunity in lecture to read some of the passages from the assigned article aloud, verbalizing the language used by advocates to describe the people unemployed by the policy and the implications. Here are two passages from the paper I usually include:

Sidney and Beatrice Webb (1897 [1920], p. 785) put it plainly: With regard to certain sections of the population [the "unemployable"], this unemployment is not a mark of social disease, but actually of social health." "[O]f all ways of dealing with these unfortunate parasites," Sidney Webb (1912, p. 992) said in the Journal of Political Economy, "the most ruinous to the community is to allow them to unrestrainedly compete as wage earners.
In his Principles of Economics, Frank Taussig (1921, pp. 332-333) asked rhetorically, "how to deal with the unemployable?" Taussig identified two classes of unemployable worker, distinguishing the aged, infirm and disabled from the "feebleminded . . . those saturated with alcohol or tainted with hereditary disease . . . [and] the irretrievable criminals and tramps. . . ." The latter class, Taussig proposed, "should simply be stamped out." "We have not reached the stage," Taussig allowed, "where we can proceed to chloroform them once and for all; but at least they can be segregated, shut up in refuges and asylums, and prevented from propagating their kind.

When I get to the words "parasites", I am aware that my tone of voice and demeanor are showing signs of disgust. They are disgusting sentiments, not easily read aloud to a classroom of students.

I think this is useful pedagogically for several reasons. First, it teaches students in political economy to carefully distinguish positive analysis from normative evaluation. By building this in early in the course, I find it easier to teach more difficult concepts like Coase and externalities. Second, it poses a striking challenge to students' priors that good intentions lead to good policy. I use the opportunity to emphasize that economists judge policies by their outcomes, not the intentions behind them. Third, the example demonstrates the value of knowing something about the history of ideas and economic thought. It enriches their knowledge of both of the historical and contemporary debates and they remember it (I think). Fourth, the discussion invites a consideration of what values, views, and policies are consistent with their own normative positions. And finally, it is a powerful illustration of how ideas have consequences.

Having done this for several years when I teach price controls, I was really excited to hear this point raised in this week's Econtalk. I look forward to reading the new book, Illiberal Reformers, over Christmas.


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COMMENTS (9 to date)
Maniel writes:

Emily,

I've always looked at the minimum wage in the simplest of terms, as a law against working. I've posted something like the following before.

To appreciate just how ridiculous the minimum wage is, consider a simple example. Suppose that you can afford to pay $5 to have your lawn mowed and that I agree to do it at that price. Just as we are concluding our agreement, someone from the government arrives to explain that it is illegal for me to mow your lawn for less than $10. So, no deal! You don’t get your lawn mowed and I don’t earn $5, a “lose-lose” proposition. By the way, if a $10 minimum for lawn mowing is good, why wouldn’t a $15 or a $20 minimum be better? If preventing me from mowing your lawn today is good, why wouldn't preventing me forever be better?

Mr. Econotarian writes:

There is a real parallel between the early 20th Century progressives that argued minimum wages meant that "inferior races" who did not earn a "living wage" did not deserve a job (or even to reproduce), and the early 21st Century progressives who argue that a business that can't afford to pay a "living wage" to all of its workers did not deserve to survive.

bill writes:

Wow, those are very disturbing quotes. I was not aware of that history.

With that in mind, I've changed my mind about this:

"economists judge policies by their outcomes, not the intentions behind them."

If someone sets out with really hideous intentions and the results of their policies end up by chance to be good, I'm still going to judge them.

bill writes:

Wow, those are very disturbing quotes. I was not aware of that history.

With that in mind, I've changed my mind about this:

"economists judge policies by their outcomes, not the intentions behind them."

If someone sets out with really hideous intentions and the results of their policies end up by chance to be good, I'm still going to judge them.

Jaimie writes:

I agree with Sydney and Beatrice Webb's concept that the minimum wage is a good way to filter out the bad or "unfit". But not necessarily towards the works. I am appalled that they use words such as "parasites" to describe people that are unemployed. I believe that everyone should get equal opportunities at employment. Having the minimum wage is a good way to guarantee that workers aren't cheated out receiving the proper payment for their labor. It is reasonable to have a minimum wage to at least make it so that a livable income is received from working that job. I completely agree with Mr. Econotarian's comment in regards to the fact that early 21st Century progressives believe that if a business can not afford to pay employees the minimum wage, that business is not fit to survive the current world's economy.

Nathan writes:
that binding price controls would cause job losses and unemployment.

Yes, that is true. But the assumption that current and proposed minimum wages levels are actually binding is unproven. I can draw you a graph using Econ 101 level ideas that shows that in the face of a labor market monopsony (or under anything less that a fully competitive labor market) that minimum wages will INCREASE employment.

Labor market monopsony was undoubtedly the situation of most of America for the past 60 years, where one big employer dominated each town's economy. Whether or not that is still the case is a "testable proposition", as they say. But assumptions matter, and if you really want to "teach the controversy" then teach the ACTUAL controversy, i.e. examine your assumptions and support them with empirical evidence.

The usual suspect writes:

Is this a joke? Anyone can see this is cheap propaganda meant to poison the well of discourse about the minimum wage by associating the "pro" side with its former supporters, and not the clever discussion of policy considerations you seem to believe it is.

christian jimenez writes:

Minimum wage is a touchy subject. With so many pros and so many cons it can literally go any way. but from reading this I now do realize that Job losses are the only thing everybody can agree on. Though it does desirable and the ones with little experience, I do believe it can be a little unfair to those with no experience to find jobs

LD Bottorff writes:

Thanks for the link to McCloskey's article. It is priceless!
I guess I'm going to have to buy her books.

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