Making Economic Sense
by Murray N. Rothbard
Chapter 36
Outlawing Jobs: The Minimum Wage, Once More
There is no clearer demonstration of the essential identity of the two
political parties than their position on the minimum wage. The
Democrats proposed to raise the legal minimum wage from $3.35 an hour,
to which it had been raised by the Reagan administration during its
allegedly free-market salad days in 1981. The Republican counter was to
allow a "subminimum" wage for teenagers, who, as marginal workers, are
the ones who are indeed hardest hit by any legal minimum.
This stand was quickly modified by the Republicans in Congress, who
proceeded to argue for a teenage subminimum that would last only a
piddling 90 days, after which the rate would rise to the higher
Democratic minimum (of $4.55 an hour.) It was left, ironically enough,
for Senator Edward Kennedy to point out the ludicrous economic effect
of this proposal: to induce employers to hire teenagers and then fire
them after 89 days, to rehire others the day after.
Finally, and characteristically, George Bush got the Republicans out of
this hole by throwing in the towel altogether, and plumping [p. 133]
for a Democratic plan, period. We were left with the Democrats
forthrightly proposing a big increase in the minimum wage, and the
Republicans, after a series of illogical waffles, finally going along
with the program.
In truth, there is only one way to regard a minimum wage law: it is compulsory
unemployment, period. The law says: it is illegal, and therefore
criminal, for anyone to hire anyone else below the level of X dollars
an hour. This means, plainly and simply, that a large number of free
and voluntary wage contracts are now outlawed and hence that there will
be a large amount of unemployment. Remember that the minimum wage law
provides no jobs; it only outlaws them; and outlawed jobs are the
inevitable result.
All demand curves are falling, and the demand for hiring labor is no
exception. Hence, laws that prohibit employment at any wage that is
relevant to the market (a minimum wage of 10 cents an hour would have
little or no impact) must result in outlawing employment and hence
causing unemployment.
If the minimum wage is, in short, raised from $3.35 to $4.55 an hour,
the consequence is to disemploy, permanently, those who would have been
hired at rates in between these two rates. Since the demand curve for
any sort of labor (as for any factor of production) is set by the
perceived marginal productivity of that labor, this means that the
people who will be disemployed and devastated by this prohibition will
be precisely the "marginal" (lowest wage) workers, e.g. blacks and
teenagers, the very workers whom the advocates of the minimum wage are
claiming to foster and protect.
The advocates of the minimum wage and its periodic boosting reply that
all this is scare talk and that minimum wage rates do not and never
have caused any unemployment. The proper riposte is to raise them one
better; all right, if the minimum wage is such a wonderful anti-poverty
measure, and can have no unemployment-raising effects, why are you such
pikers? Why you are helping the working poor by such piddling amounts?
Why stop at $4.55 an hour? Why not $10 an hour? $100? $1,000?
It is obvious that the minimum wage advocates do not pursue their own
logic, because if they push it to such heights, virtually the entire
labor force will be disemployed. In short, you can have [p.
134] as much unemployment as you want, simply by pushing the
legally minimum wage high enough.
It is conventional among economists to be polite, to assume that
economic fallacy is solely the result of intellectual error. But there
are times when decorousness is seriously misleading, or, as Oscar Wilde
once wrote, "when speaking one's mind becomes more than a duty; it
becomes a positive pleasure." For if proponents of the higher minimum
wage were simply wrongheaded people of good will, they would not stop
at $3 or $4 an hour, but indeed would pursue their dimwit logic into
the stratosphere.
The fact is that they have always been shrewd enough to stop their
minimum wage demands at the point where only marginal workers are
affected, and where there is no danger of disemploying, for example,
white adult male workers with union seniority. When we see that the
most ardent advocates of the minimum wage law have been the AFL-CIO,
and that the concrete effect of the minimum wage laws has been to
cripple the low-wage competition of the marginal workers as against
higher-wage workers with union seniority, the true motivation of the
agitation for the minimum wage becomes apparent.
This is only one of a large number of cases where a seemingly purblind
persistence in economic fallacy only serves as a mask for special
privilege at the expense of those who are supposedly to be "helped."
In the current agitation, inflation -- supposedly brought to a halt by
the Reagan administration -- has eroded the impact of the last minimum
wage hike in 1981, reducing the real impact of the minimum wage by 23%.
Partially as a result, the unemployment rate has fallen from 11% in
1982 to under six percent in 1988. Possibly chagrined by this drop, the
AFL-CIO and its allies are pushing to rectify this condition, and to
boost the minimum wage rate by 34%.
Once in a while, AFL-CIO economists and other knowledgeable liberals
will drop their mask of economic fallacy and candidly admit that their
actions will cause unemployment; they then proceed to justify
themselves by claiming that it is more "dignified" for a worker to be
on welfare than to work at a low wage. This of course, is the doctrine
of many people on welfare themselves. It is [p. 135] truly a strange
concept of "dignity" that has been fostered by the interlocking minimum
wage-welfare system.
Unfortunately, this system does not give those numerous workers who
still prefer to be producers rather than parasites the privilege of
making their own free choice.
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