There are plenty of good arguments against the minimum wage, but I’m not persuaded by reductio arguments like this one:
Kerry proposes that the legislated minimum wage reach $7.00 per hour in 2007. Why wait until then? If government can increase workers’ earnings by declaring in a statute that no worker shall be paid less than $7.00 per hour, why delay this move to greater prosperity?
Indeed, why an hourly minimum wage of only $7.00? Why not $17.00 per hour? Or $70 per hour?
The argument works well enough if you’ve already got a competitive model of labor markets in your head. But clearly enough, the proponents of minimum wage increases are not working with that model. The minimum-wage advocates who have thought much about it (of course, many haven’t) usually have in mind some kind of monopsony model – that is, they assume a market in which employers have some degree of monopoly buying power. Under monopsony, wages can in theory be increased within a certain range with no reduction (and maybe even an increase) in employment. But if the wage rises above a critical point, then disemployment kicks in. Thus, a believer in the monopsony model can consistently favor small increases in the minimum wage while still opposing large ones.
Assuming the truth of the monopsony model for argument’s sake, the question is whether you trust the government’s ability (and incentive) to “fine tune” the minimum wage so that it always falls within the no-disemployment range. I don’t, in part because the size of that range differs across markets and regions, and in part because the range is probably small in any case (as competition increases, the size of the no-disemployment range shrinks). And how likely is it that John Kerry’s nice round $7 figure is based on anything other than a raw political calculation?
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