Kurt Bouwhuis, Mackinac Center Intern
Bellow is a blog post from Cafe Hayek from June, 2006 that is relevant to both the Federal increase in the minimum wage and the proposed increase in the minimum wage in Michigan.
by: Don Boudreaux
In a private e-mail sparked by my most recent post on minimum-wage legislation, someone accused me of being an “ideologue.” His evidence, of course, is my opposition to such legislation as a means of helping low-skilled workers.
I realize that Humpty Dumpty instructed Alice that a user of a word can mean by that word whatever he or she wants that word to mean. But we live in a wonderland if we imagine that such use of language facilitates communication.
Am I an ideologue for continuing to believe that a higher price of labor will cause employers to hire less labor, or to extract more output from any given amount of labor? Does this insistence that the law of demand describes reality reveal ideological blindness? (I know, I know: it’s theoretically possible for a minimum wage to increase employment if there’s monopsony power in labor markets. But any such allegation of monopsony power – any allegation that each employer of low-skilled labor does not compete with other employers to hire such labor — flunks the smell test. One of the few benefits enjoyed by low-skilled laborers is their possession of highly versatile abilities, thus making it quite easy for each of them to switch jobs even for a modest difference in relative wage rates and work conditions.)
If I am an ideologue on this matter, then so is everyone else. Everyone. I’m certain that no one really believes that the law of demand sometimes is suspended. For example, I’ve met no one who, upon finding that he cannot sell his house at his current asking price of $250,000, re
asons that he will attract more potential buyers if he raises his asking price to $260,000. I’ve never heard of a supermarket that seeks to clear out excessively large inventories of canned peas or laundry detergent by raising the prices it charges for these items. I’ve never heard of a construction contractor who
believes that the higher the price he asks to do a job the more likely he is to be awarded the contract for that job. I’ve never encountered a car salesman who, upon my rejecting the price he asks for a car that I just test drove, says “Okay, okay. I’ll talk to my manager and ask if he’ll accept an even higher price for this baby.” I don’t encounter advertisements by merchants bragging that their prices are the absolute highest in town — guaranteed! Do any of you, Dear Readers, know of such behaviors? More importantly, do you know people who are generally more likely to purchase something as its price rises? If you do, surely you are by now a person of enormous wealth.
What is it about unskilled- and low-skilled labor that makes many people fancy that the law of demand does not apply to it? Are the greedy, profit-lusting employers of this labor so foolish that they’ll just dish out more money for the same output as before, without economizing further on labor – say, by buying less of it or by extracting more work from each man-hour hired? Or are low-skilled workers so daft or dysfunctional that they consistently refuse to respond to pre-minimum-wage-hike differences in wages and work conditions?
No – the true ideologue is one who suspends his awareness of all that he knows about reality in order to continue to believe in some pet possibility – some pet possibility that is inconsistent with reality.