Tag Archives: Morality

The Minimum wage and symbolic behavior

President Biden wants to raise the minimum wage (MW) to $15. Many politicians, labor unions, and others support this policy. The non-partisan Congressional Budget Office, however, predicted that raising the MW will cost 1.4 million jobs.

Economists already knew this, of course. By a simple application of the law and supply and demand we can predict that raising the MW will create unemployment: if employers are forced to raise their salaries they will hire less workers.

To be sure, the literature is not unanimous. A well-known paper by Card and Krueger used empirical data to question the conventional wisdom that the MW reduces employment. However, their findings have been repeatedly challenged (see especially here). I cannot adjudicate the issue here, but an intellectually honest examination (such as the one conducted by the CBO) must acknowledge that, given the extant specialized literature, there is at least a serious probability that raising the MW will cause unemployment.

Yet, in my conversations with supporters of the MW I have found a stiff resistance to even consider the objection. Some deny that the MW causes unemployment, often citing the Card & Krueger paper. This position is implausible if the MW supporter refuses to consider the evidence and arguments against Card & Krueger, especially given that the weight of expert opinion is on the other side. An honest observer should not cherry-pick the evidence and at the very least remain agnostic or cautious in support of the MW.

But caution is not what we see. Setting aside the evidence, some say that the MW is required for moral reasons. This is an interesting position, because it seeks to block empirical considerations in the evaluation of the MW. This is odd, however. If the MW has bad consequences, what could possibly be the non-empirical reasons in its favor? Maybe this one: support for MW expresses support for the poor, here represented by the lowest-wage earners. But if the MW causes unemployment, that means that by supporting the MW one fails to support the poor, since the unemployed are generally poorer than the MW earners.

Maybe the MW supporter can argue as follows:
(1) No one knows for sure if the MW creates unemployment.
(2) Supporting the MW expresses solidarity with the poor.
(3) Expressing solidarity with the poor is noble.
(4) Therefore, I am justified in supporting the MW, since in doing so I perform a noble action that does not have obvious bad consequences.

The two first premises are questionable. Premise (1) misrepresents the status quaestionis, as I indicated earlier. Economists have studied the issue, and the consensus is that there is at least a serious question that the MW will reduce employment. Premise (2) is dubious, because the expressive value of MW support is entirely parasitic on the mistaken belief that raising the MW helps wage earners without producing any bad consequences. This is a violation of Hazlitt’s injunction that in order to evaluate a policy, we must consider not just its effects on the group that benefits, but also its effects on other social groups. A policy must be evaluated by both its seen and unseen effects. Since (1) and (2) are false, (4) is false.

If the MW supporter instead claims that those already employed are morally deserving beneficiaries of the raise, then he must not only justify why them, and not others, deserve this benefit, but, as important, openly acknowledge that the policy will hurt many others. MW supporters never do this. They just deny or ignore these bad consequences.

I happen to believe that the best explanation of why many people support the MW despite the evidence is that they are grandstanding. They signal their compassion by taking advantage of the ignorance of the public about the functioning of labor markets. This is an instance of discourse failure: the public assertion of a falsehood where the speaker has truth-insensitive reasons for saying what she says.

But even taking the MW supporter at her word, that there are non-empirical, or moral, reasons for such support, the position doesn’t hold. Symbolism may have a place in certain contexts. Think, for example, of a public expression of solidarity with victims of genocide. Even if such act does not save the victims, the symbolic expression of support may be an appropriate or commendable act.

But symbolism has no place in the realm of economic policy, where outcomes control. If people support the MW in the name of helping workers, and it turns out that the MW hurts more workers than those it helps, then that should end the debate.