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Kinsley: The minimum-wage gamble

Op-Ed

Raising the minimum wage to $9 from $7.25 might destroy jobs. Then again, it might mean a 24% pay raise.

February 21, 2013|By Michael Kinsley
  • President Obama speaks at Hyde Park Academy in Chicago, Ill. Obama is calling for a raise to the federal minimum wage, job training and marriage for low income families on his post State of the Union tour promoting his "ladders of opportunity" initiative.
President Obama speaks at Hyde Park Academy in Chicago, Ill. Obama is calling… (Tannen Maury / EPA )

Even a conservative who ordinarily doesn't care much for government regulation of business ought to find the case for a government-mandated minimum wage pretty compelling. In brief: As a conservative, you believe in the dignity of work. And it sends a terrible message about the dignity of work when working full time does not earn you enough to live a decent life.

On the other hand, even a committed liberal who is concerned about growing income inequality ought to have some doubts about the minimum wage. The minimum wage reduces employment (or "destroys jobs," as the accusation is usually put) by pricing people out of the market.

When two people (let us call them "worker" and "boss") voluntarily make an employment deal, we can presume it must be good for both of them. Otherwise, they wouldn't do it. No one is forced to take any job, so when someone does take a job, we may surmise that he or she finds the job, at the pay being offered, preferable to other available jobs — or to no job at all. By what right and what logic do we step in and say no, this is a deal you're not allowed to make?

You may say that when an unemployed worker with a family to support takes a nasty job at a low wage out of desperation, this is hardly the kind of voluntary free-market decision contemplated by Adam Smith. But unless you are offering a better job or a better wage, simply forbidding this particular deal is of less than no help. The minimum wage restricts workers as well as bosses: It forbids both categories of economic actor from making a deal they wish to make.

The current federal minimum wage is $7.25 an hour, a figure that reflects our ambivalence about the whole idea. A wage of $7.25 an hour is $15,080 a year. At this level, we're violating the principle of free markets by having a minimum wage of any level. But $15,080 is not enough for anyone — let alone any family — to live on with dignity.

President Obama proposes to raise the minimum wage to $9 an hour. Economics tells us that this will destroy jobs. Anyone whose work is worth more than $7.25 but less than $9 will become unemployable. What kind of favor is this to them?

Critics of the minimum wage like to say that it slices the bottom off the ladder of success. You might be able to work your economic value up from nothing to five bucks an hour to nine bucks or (we may hope) even more. (Nine dollars an hour is still only $18,720 a year. Good luck.) But if you can't even start the great game of life until you're worth $9 an hour, the challenge is greater.

There are studies suggesting that the minimum wage does not really destroy jobs. These get hauled out whenever an increase in the minimum wage is contemplated. They are hard to believe. In fact, I don't believe them. The conclusion is just too counterintuitive and too convenient.

Critics of the minimum wage think this is the end of the story. To them, the minimum wage is just an anachronism from the New Deal, a sop to people who don't believe or don't understand the basic principles of economics.

Yet many government policies violate basic principles of economics and therefore reduce our prosperity. A perfectly legitimate answer to this objection is, "So what?" A prosperous society like ours can afford to give up some prosperity in exchange for more equality or some other social goal.

If we were to ask people who actually do work for minimum wage whether they would like to see it abolished, most undoubtedly would say, "No thank you." Is this because they don't know economics? Because they don't realize how the minimum wage could take away their jobs? Because they're crazy or duped by left-wingers who love red tape and hate America and want to see our economy strangled?

Not necessarily. Minimum-wage workers might quite reasonably think: "This is a gamble. But it's a gamble worth taking. Maybe I'll end up without a job, but maybe I'll end up with a raise of $1.75 an hour." That doesn't sound like much of a raise, but it's 24%.

You can't know for sure in advance which effect a minimum-wage increase would have on any particular person: A raise, or unemployment? But it is far from irrational for minimum-wage workers to conclude at some point that the risk of losing their jobs is worth taking in exchange for the certainty of a raise. It depends on the size of the risk and the size of the raise.

Of course, it's possible that a policy such as the minimum wage might be bad for society even if it's good for the individuals most closely affected by it. So you go and tell someone making $7.25 or even a whopping $9 an hour that you want to eliminate the minimum wage for his or her own good. I'm not going to.

Michael Kinsley, a former editorial page editor of The Times, is a Bloomberg View columnist.

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