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Brooks Wilson's Economics Blog: Glaeser on the Minimum Wage

Friday, June 5, 2009

Glaeser on the Minimum Wage

In a previous post, I cited surveys of economists on the minimum wage.  The majority don't like it.  Edward Glaeser ("Coercive Regulation and the Balance of Freedom," Cato Unbound, May 11, 2007) the Fred and Eleanor Glimp Professor of Economics at Harvard University, responds to Daniel Klein, a professor of economics at George Mason University, ("Economics and the Distinction between Voluntary and Coercive Action, Cato Unbound, May 7, 2007).  Klein takes a doctrinaire approach; he doesn't like minimum wage laws because the are coercive.  Glaeser takes a more practical approach; they don't work well and that there are better alternatives for helping the working poor.
Daniel Klein has written an elegant essay arguing that minimum wage laws are coercive. He is obviously right. These laws threaten employers with state-sponsored violence if they have a contractual relationship with wages that are too low. To me, the most striking fact in the essay was that more than fifty percent of a survey of economists said that these laws are not coercive in any significant sense. That’s just silly...

The case against the minimum wage or other related restrictions on contracting does not, in my view, come from clear anti-coercion axioms or even maxims, but from other more technical reasons that have been emphasized for decades. If we want the state to redistribute income, we have sensible means for doing that like Friedman’s negative income tax or the Earned Income Tax Credit. These tax-based approaches are also coercive, but they can increase the choice set of the poor with less of a reduction in the freedom of others. Obviously, these tax-based solutions don’t restrict the set of available contracts and that is a great plus. The fact that American minimum wages are too low to create large-scale unemployment shouldn’t blind us to the fact that, across the Atlantic, far more aggressive minimum wages are accompanied by vast numbers of unemployed youths. The minimum wage is also bad redistribution policy because it imposes the costs of redistribution on the employers of the poor, and on their customers who will have to pay higher prices to make up for higher wages. If we want to redistribute income to the poor, then it is appropriate that everyone with resources pay, not just employers in sectors that employ the less fortunate.

A final reason to reject further increases in the minimum wage is that it gets the government into the business of setting prices, and this requires competence that seems far beyond the limits to government. The case for laissez-faire comes ultimately not from unbounded faith in the power of the market, but rather in a realistic appraisal of the limitations of government. Price-setting is a difficult task that is prone to enormous abuse. The historical track record of price and rent controls is pretty terrible. It seems like this track record should make us further recoil from further governmental incursions into setting prices.

By reminding us about the coercive nature of the minimum wage and other similar regulations, Daniel Klein also reminds us that the centuries of sagacious concerns about the abuse of government power also apply in this case. Perhaps we should use redistributive taxes that reduce the freedom of the wealthy to increase the freedom of the poor, but it is hard to think that the minimum wage is a good tool for redistribution.


  1. Derrick Villa10/6/09 12:02 AM

    I do agree with Klein's take on minimum wage laws being coercive. By the government setting minimum wage, it leads to a price floor causing employers to hire less labor than they orignally would of had. The increase in price that employers are forced to pay have now caused more umemployment in society, the people who didn't have jobs still don't have jobs and now some of the people who had jobs no longer have them leading to an increase of supply of labor but a decrease in demand.

  2. Dr. Wilson,
    I to agree that minimum wage laws are not the best way to help the poor, but I do not feel that people with the "resources" should have to help the poor. I feel as if just because they have "the ability to pay" does not mean that they should. They worked to get that money and what they do with it should be their decision, but that is probably just my personal work ethic getting in the way. So, my opinion is probably biased.

    Your student,
    Lindsey Scott

  3. Jacinta Tatman27/6/09 12:22 AM

    Obviously increasing minimum wage will decrease the number of employees a firm is able and willing to hire. There will also be a surplus of workers which will cause many to be unemployed since companies cannot afford to pay workers this much. I think a better way to help the poor is through educational programs that help them gain skills to become employable, since raising the minimum wage creates a backlash.