The Sin of Wages

Steven E. Landsburg does an analysis of who pays for the minimum wage increases. He looks at it in terms of a program to transfer money to the unskilled worker.


the minimum wage places the entire burden on one small group: the employers of low-wage workers and, to some extent, their customers. Suppose you're a small entrepreneur with, say, 10 full-time minimum-wage workers. Then a 50 cent increase in the minimum wage is going to cost you about $10,000 a year. That's no different from a $10,000 tax increase. But the politicians who imposed the burden get to claim they never raised anybody's taxes.

If you want to transfer income to the working poor, there are fairer and more honest ways to do it. The Earned Icome Tax Credit, for example, accomplishes pretty much the same goals as the minimum wage but without concentrating the burden on a tiny minority. For that matter, the EITC also does a better job of helping the people you'd really want to help, as opposed to, say, middle-class teenagers working summer jobs. It's pretty hard to argue that a minimum-wage increase beats an EITC increase by any criterion.

It seems to me that we have to recognize the effects of the labor market as well. We have to expect business to be blindly amoral in its search for increased profits. We have to expect business to strive to keep its costs as low as possible. The unskilled worker is vulnerable in two ways. One, he is not as productive as a skilled worker and represents comparatively little value-added for his employer. And two, the pool of unskilled workers is probably the largest pool of workers to be in. Rather than just raising unskilled wages, it would seem to make more sense to get people out of the unskilled pool. The pool would become smaller which, at some threshold, would begin to drive up mimimum wages. And the employers would get sufficient value-added to offset the higher wages. So if we as a society are going to improve the lot of those at the lowest rungs it is in training and a living income while being trained.