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Economics vs. Minimum Wage Politics

E.G. West

• Carelton University (Ontario)

“The Unsinkable Minimum Wage.” Policy Review 11(Winter 1980):83–95.

Rarely has Western history seen a period in which the price of labor was not regulated in one way or another. In mercantilist times, authorities imposed maximum wage regulations; today, we legislate a minimum wage, ostensibly to protect workers whose skills are least favored by the market. In his article, Prof. West reviews the formidable objections raised by contemporary economists against government imposition of a minimum wage. Unfortunately, he comments, in this debate with politicians, economists win all the arguments and lose all the votes. He urges economists to marshall their new empirical findings in such a way as to influence policymakers.

One of the classic arguments favoring minimum wage legislation, contends that such laws safeguard the rights of students, who comprise a significant percentage of the part-time labor force yet whose minimal skills obtain rock-bottom wages for them in the market place. In rebuttal, research has demonstrated that minimum wage laws make many students un-employable at the required salary levels. They are thus deprived of funds to continue their education—which in turn contributes to a more poorly trained work force.

F. Ray Marshall, Labor Secretary under President Carter, has answered this type of argument simply by asserting that, since the market had “failed” to provide jobs, the public sector should step in with such schemes as the Job Corps. More accurately, of course, the government has failed to let the market provide student jobs. Somewhat contradictorily, Secretary Marshall also argues that a minimum wage is actually needed to displace young people in order to induce them into publicly sponsored training projects. Most policymakers explicitly consider formal education under public auspices superior to on-the-job training, a dubious assumption in the light of the results. The minimum wage may well prevent a substantial amount of on-the-job training for students, as well as for school dropouts.

Minimum wage advocates also hold it up as an effective means of fighting poverty. However, the uncertainty of its real effects makes its usefulness in this area highly dubious. Proponents usually argue that income gains outweigh any employment displacement, so that, over all, income distribution improves. However, those proponents have presented no empirical evidence.

Elitism motivates much of the supposed egalitarianism of minimum wage supporters. Secretary Marshall, for example, argued in 1978 that it made sense to put 30,000 youths out of work by passing a higher minimum, so that the government might better induce them into school and into federal job programs. These socially engineered schemes impoverish the nation, families, and individuals far more than simple unemployment.

Vested interests in the minimum wage form a powerful lobby from labor unions to government functionaries whose jobs depend on the existence of such laws. As a result, political expediency and the crassest self-interest may continue to control this area of public policy. Nonetheless, West concludes, economists have the duty to persevere.